If you’ve missed payments on your credit card, bills, mortgage or any other type of debt, you may have a bad credit score.
A bad credit score can, unfortunately, impact your ability to get a loan and may limit your finance options. It does not mean you can’t get a personal loan but may add some complexity to your search for the best loan available.
Why it may be harder to get a loan if you have bad credit
People with bad credit scores often have negative marks in their credit reports, due to late payments or overdue accounts.
Having bad credit could limit your options and lead to more expensive car loan offers, as having a bad credit score is sometimes read by lenders as an indication the borrower may not be reliable when it comes to repaying the loan.
Your credit score is used by lenders and creditors to determine your creditworthiness and what level of risk you may be if they were to lend you money. Lenders may view you as riskier if you have a bad credit score, making it harder to get loan approval.
People with bad credit may be denied a car loan for multiple reasons, such as the type of bad credit you have, or the size of your defaults. Each lender sets its own standards for assessing credit. Some lenders may not approve you at all or may charge higher fees to offset their risk.
Even a small percentage of difference in your credit score could result in you paying more in interest for the loan. If you have a bad credit score, your mortgage lender may approve you, but for a higher-interest loan.
Not all lenders will reject your loan application
While bad credit generally indicates that you may be unreliable as a borrower, this doesn’t mean you will not be able to get approval for a loan.
Many banks and lenders may decline your application, however, there are non-conforming or specialist lenders that are more flexible with their lending policies. They will assess your loan application on a case by case basis.
You may be able to get a loan if you work with a lender that doesn’t require good credit, or if you qualify based on other criteria. While your credit score is an important factor in getting approval for a loan, lenders may also consider other factors such as your income, debts, collateral and credit history.
Some lenders decide to limit their risk by only working with good credit borrowers, while others are more willing to offer personal loans to borrowers with different credit scores. Lenders that offer personal loans to people with bad credit may offset their risk by charging a higher orientation fee and interest rate.
Other options for getting a loan
While fewer lenders may be willing to give you a loan if you have bad credit, there are still many options for people with bad credit. You may want to look for lenders who work regularly with borrowers who have fair credit.
Another option may be to find a co-signer – a trusted person (such as a family member or close friend) who may be willing to co-sign on your behalf to help guarantee your loan. Just remember, your co-signer is responsible for paying if the loan is defaulted on, and their credit score can be affected. This can make it a risky partnership to enter into.
If you’re not looking for an emergency loan, improving your credit before applying for a loan may enable you to have more options and get a better deal. Some things you can do to improve your credit score include paying your bills on time, paying down any existing loans or debts and getting financial assistance from a professional.
Carefully consider if you can comfortably afford loan repayments before applying for a personal loan so that you don’t further damage your credit score and put yourself in a difficult financial situation. Loan insurance is another factor to consider, to protect yourself in the event you cannot afford to repay your loans.
If you’re looking to get a personal loan, contact 360 Finance Specialists today.