If you have bad credit, you may find it difficult to qualify for a personal loan without a co-signer, as many lenders only accept borrowers with good to excellent credit. And even if you qualify for one, you’ll most likely pay a hefty interest rate and fees.
Fortunately, some lenders offer personal loans for borrowers with bad credit. Before deciding on a lender, compare the eligibility requirements, borrowing costs, loan terms, and the types of features offered by multiple lenders.
Check your other qualifications
When you fill out a personal loan application, your credit is not the only factor a lender considers. Lenders usually also consider your income and debt-to-income ratio (DTI).
Your DTI compares your monthly gross income to your monthly debt burden. For example, if your monthly gross income is $5,000 and your monthly debt is $2,500, your DTI is 50%
Minimum income and DTI requirements vary by lender. You can find out what they are by checking a lender’s website or by contacting their customer service team.
Look for lenders who consider other factors besides creditworthiness
Most lenders will check your creditworthiness and income when you apply for a personal loan, but some consider non-traditional factors. For example, Upstart takes your education and experience into account. If you can find a lender that considers more than just your credit score, you may have an easier time getting approved.
Determine credit costs
When comparing personal loans for bad credit, the most important factor to consider is the cost of borrowing. Your borrowing costs fall into two categories: interest rate and fees. Interest is what you pay to the lender each month.
Lenders sometimes charge a processing fee for processing your application, which is often deducted from your loan amount. If you don’t repay your loan on time, or if you don’t have enough funds in your account to cover your monthly payment, you may have to pay late or bounced check fees.
When reviewing your options, pay particular attention to the annual percentage rate (APR) advertised by a lender — it takes into account interest and any fees a lender charges. Some lenders allow you to pre-qualify for a personal loan to view estimated interest rates and terms without impacting your credit score.
To estimate your borrowing costs, you should use a personal loan calculator. By entering your loan term, loan amount, and estimated interest rate, you can get an idea of what your monthly payment might look like and estimate how much you’ll pay in interest.
Evaluate any additional features that the lender has
Some lenders offer borrowers additional perks, such as B. the ability to defer a monthly payment with no interest payment, free FICO scores and free credit reports. When comparing your options, it can be useful to consider the value of these additional features.
Consider the loan term and the impact on monthly payments
The loan terms vary depending on the lender. In general, choosing a shorter loan term can help you save money on interest, but your monthly payments will be higher. In contrast, choosing a longer loan term may lower your monthly payments, but you may pay more interest over the life of the loan.
Let’s say you took out a $10,000 personal loan with a three-year term at 8%. In this case, your estimated monthly payment would be $313 and you would pay $1,281 in interest over the life of the loan.
On the other hand, if you took out a five-year loan for the same amount at 8%, your estimated monthly payment would be lower – $175. However, you would pay $2,624 in interest over the life of the loan — a $1,343 difference.
Check if you can get a secured loan
Most personal loans are unsecured. This means no collateral is required, such as a car letter or bank account, which a lender can take if you fail to repay the loan. But unsecured personal loans usually come with stringent credit requirements; As a result, qualifying for one with bad credit can be difficult.
However, some lenders offer secured personal loan options. Secured personal loans require collateral, but they may have less stringent credit requirements and offer lower interest rates to consumers with bad credit.
Even with bad credit, a personal loan is possible. Compare rates, terms and fees from multiple lenders to get the best deal for your unique situation. When shopping, pay special attention to key factors such as eligibility requirements, loan terms, and APR.