A bad credit score can really ruin your chances of getting a loan. If you do get the loan, you are going to pay a much higher interest rate and higher fees than someone with good credit would have to pay. The good news is that it is not impossible to get a loan with bad credit; you will just have to be a little more creative than someone with great credit would have to be in order to get a loan.
The first thing you need to do is determine exactly what “bad credit” is to each lender. Two lenders right next door to each other could have a completely different outlook on what a bad credit loan is to them. This is why the first tip is to shop around with various lenders. You need to do this as quickly as possible, typically within a 2 week period in order for it to not hit your credit report multiple times though, as the credit bureaus ding your credit slightly for every inquiry that you have. If you have a plan and know exactly who you want to apply with and do it within a short span in order to comparison shop as well as see who will approve your application, your credit will only reflect one type of inquiry.
Get a Secured Loan
If you do have bad credit according to most lenders, an unsecured loan will be a very unlikely choice for you. An unsecured loan is a loan that relies strictly on your qualifications, there is no collateral offered up if you were to default on the loan. In the case of bad credit, you will have to opt for a secured loan. This means that you are giving up some type of collateral in exchange for the loan. For example, an auto loan uses the car as collateral. If you do not pay the car loan on time, the bank can repossess your car. Personal loans, on the other hand, are typically unsecured. You can opt for a secured credit card or a secured personal loan to give your application a better chance at being approved. Lenders typically accept cars, property, and savings accounts as acceptable collateral.
Try your Local Credit Union
Credit unions are not just for the people that work at that specific company; today many credit unions are open to the public. These lenders are similar to a bank, but they are much smaller. Because of that, they are more willing to work with individuals rather than looking at them just as a number (or credit score). If you have bad credit, they may be willing to take the risk on your loan in exchange for a higher interest rate, more fees, or as discussed above, some type of collateral. Credit unions keep most of their loans in their own portfolio so they have a greater ability to diversify their risk than a bank that sells their loans to secondary investors would.
Use a Cosigner
A cosigner is one of the best ways to get your loan approved despite your bad credit. The problem is that you have to find someone that is willing to take the chance on you. If you were to default on the loan and your friend cosigned for you, he would then be liable for the loan or his credit could be ruined. This can be a tricky situation, so you want to tread carefully here. The key is to make timely payments with this type of loan so that your credit improves and you do not damage your relationship with the cosigner. If your credit improves enough over time, you could likely refinance the loan into your own name and relinquish the responsibility of the cosigner.
Getting a loan with bad credit can be done with a little more legwork than would be necessary if you had good credit. Once you get the loan, it is very important that you make your payments on time and try to keep your credit utilization rate under 30% if it is revolving credit. This enables your credit score to increase over time, allowing you to have an easier time the next time you try to apply for a loan.