Traditional lending institutions will accept loan applications from people with bad credit. But traditional lenders always charge higher interest rates for such borrowers.
These don't mean you can't get a loan with bad credit anymore. So long as you equip yourself with the knowledge of how to raise your chances. With the right strategies, you can even take home a loan of up to $5,000.
68 million people in the U.S. have bad or poor credit scores. That's about one-third of all adults in the country with credit files.
If you're one of these individuals, then you likely know how hard it is to take out a $5000 loan. You may even be one of the 32% of mortgage applicants in 2017 who got rejected due to bad credit.
So, keep reading to learn what to do to secure a personal loan even with a poor credit score!
$5000 Loans Online Direct To You
Another easy loan approval option for people with bad credit is an online personal loan. These marketplace lenders offer their financing services even to those with less-than-stellar scores. They're not banks, so they often don't follow the usual loan qualifying process.
Note, however, that interest rates vary from one online lender to another. They also have different strategies to gauge an applicant's creditworthiness. In general though, they're more willing to work with borrowers who have bad or poor credit scores.
If you can't find lenders willing to loan you $5000 with your bad credit score, online lenders may be worth a shot.
How to Repair Your Bad Credit Score
This is our first recommendation since credit scores are an important aspect of life. You'd want to fix your credit score now, as it'll affect most of your future loan applications.
Keep in mind that there's only a one-point difference between a fair and a bad score. There's the FICO scoring range, for example. Scores between 630 to 689 are fair scores, but anything lower than 630 (yes, including 629) is a bad score.
That single-point difference between 629 and 630 can already mean lower (or better!) chances of getting a loan. Or, enjoying a lower interest rate if you do get approved for one.
As such, getting a free copy of your credit score report is the first step. This'll allow you to check for any errors and report them ASAP. There are plenty of other ways to repair your credit, so make sure you carry out as many as you can.
Pay Your Local Credit Unions a Visit
Unlike traditional banks, some credit unions have more relaxed lending rules and regulations. That means you have better approval chances if you apply for a loan with bad credit with them.
One reason is because they're often smaller than many banking institutions. This means they have fewer applicants coming in. This then gives them more time to review and consider applications.
Also, rather than focusing on credit score alone, they look at other factors. For instance, you've been with the same company for many years now and you earn a decent income. They may take this into consideration and qualify you for a loan.
If you're in dire need of funds and you can't wait for your credit score to improve, this is a good strategy. You can also do this while working on improving your credit score.
Look at Your Secured Loan Options
Let's use the $20k loan example again. That, in itself, is already a lot of money. Combined with a bad or poor credit score, your chances of securing a bank loan are slim.
One way to prove lenders you'll pay them back is by using collateral. By pledging a valuable asset, such as home equity, lenders will know you're serious. Also, lenders know they can use the collateral in the event you default on your loan.
Make sure you repay your secured loan on time and in full though! That way, you don't have to worry about losing ownership of that asset you used as collateral.
Do I Need a Co-Signer for an 5k Unsecured Personal Loan?
If you're not willing to put up collateral for a secured loan, you have the option to get a 5000 unsecured loan. As the term suggests, these personal loans don't require any form of "security".
In most cases, lenders of unsecured loans look at credit scores. So, if you have bad credit, you can increase your chances by getting a co-signer with a better score. How so?
Well, if you default on the loan, the lender has two people they contact: you and your co-signer. That's because being a co-signer means guaranteeing they'll repay the loan on your behalf.
As such, getting a personal loan with a co-signer raises your odds of approval despite a bad credit score. But, you wouldn't want to default, as your co-signer's reputation is also on the line. So, make sure you pay back your own loan.
Who Offers 5000 Personal Loans?
Of all your lender options, personal loan companies have the highest approval rates. That includes applications for a $5k loan with bad credit. As such, these online personal loans are worth checking out if you're in a serious financial pinch.
Personal loans are designed to be repaid on a short-term basis, often in the next few months. That's also one of the main reasons you'll find most of these loans in smaller amounts.
Maximum loan amounts still depend from lender to lender though. That means some still offer bigger amounts.
Note that for a first personal loan, you may only be able to borrow a small amount. But if you pay this back on time, you may qualify for a bigger amount next time. Showing proof of your repayment ability can grant you that $5,000 personal loan you may need in the future.
Be careful in borrowing huge amounts though. Yes, they're the smoothest, fastest, and have the highest approval rates. However, these loans have higher interest rates.
Look for $5,000 Loans with No Hard Credit
Many people who have bad credit often turn to no hard credit check cash loans. These short term loans, as their name already suggests, don't need to run credit checks on applicants.
What's a credit check in the first place, you ask? It's the process used by lenders to look at your creditworthiness. It tells them what your score is and why you have that score.
Let's say you have a bad score because of missed loan payments or defaults. That'll tell lending institutions you may not pay them back. That then makes them likely to reject your application.
Since a no hard credit check loan doesn't carry out this process, you may have higher chances of approval. Lenders of such loans don't base qualifications on credit scores. Instead, they pay more attention to a borrower's repayment ability.
So, even with a poor or bad credit score, you can still get 5000 dollars.
Compare All Your Options before You Get a Loan with Bad Credit
In the U.S., households have an average debt of over $137 thousand. The total amount of consumer loan debts in the country is $1.48 trillion.
Consumers with bad credit owe some of these loans. That should tell you that even with bad credit, you still have a chance to get financial help. After all, the above-discussed shows you how many bad credit personal loan types there are.
So, even if you get rejected for your first, second, or third application, don't lose hope yet. Nor should you settle for the first one that you get an approval for.
But the fact that there are so many lenders should also tell you how vital it is to compare offers. Comparison is the only way to find out which loans have the highest and lowest interest rates.
This is especially true if your situation warrants something as fast as a payday loan. Again, these installment loans have higher interest rates, so you'd want to look for one that has the most reasonable rate. Also, comparing your options will let you find out those with terms that best suit your needs.
Keep in mind that even a 1% difference in interest rates can already mean a huge difference! Especially for loan amounts as big as $20,000. That rate difference can already mean paying $20 less for interest.
Final Tip: Borrow and Spend Wisely
Here's our final reminder: Before you get a $5000 loan with bad credit, be sure you borrow only what you need. Once you get access to the funds, spend it only on what needs spending.
The bottom line is, everyone should follow wise borrowing and spending habits. But it should be even more of a priority for people with bad credit. After all, the last thing you want is to acquire even more debts you'll have a harder time paying off.
Looking for information specific to credit cards? If so, then check out this guide we have on credit cards for people with bad credit!