There are many reasons that you might require a personal loan. Maybe you need to pay off medical bills or other debt, or maybe there’s something you really need (or want) to buy. No matter what the reason, if you are seeking a personal loan, it’s very important that you take out one with the lowest interest rate possible. The lower the interest rate, the less you’ll actually have to pay back on the loan and the lower your risk of getting into bad debt or making late payments.
Unfortunately, getting a great interest rate for your personal loan isn’t always easy. This is particularly true if you have bad credit. Typically, the worse your credit, the harder it will be for you to secure a loan, and, if you do, your interest rate will typically be quite high. However, that doesn’t mean that you should give up, even if your credit is bad. If you really need the loan, keep trying! It is possible to find a loan with a double interest rate, providing that you follow our five simple tips.
1. Know and Improve Your Credit Score
First things first, understand that when a lender is trying to determine whether or not to extend credit to you, he will check your credit score, which is a measure of your overall credit history. For this reason, it is extremely important that you know your credit score. You can request a free credit report from the major credit report bureaus, so take this step and carefully examine your credit.
Clear Up Inaccuracies
As you’re looking over your credit score, check for any outdated or inaccurate information. Believe it or not, inaccuracies on credit reports on common, and you don’t want something that isn’t even true holding you back from the loan that you want. If you do notice any inaccuracies, report them as soon as possible. If you’re accessing your credit report online, there’s often a simple button you can click to report inaccurate information, so take advantage of that simple option if it’s available to you.
Take Steps to Improve Your Credit
If you find that, unfortunately, some of the bad spots on your credit ARE accurate, don’t panic. Just make an effort to improve your credit, and do this BEFORE applying for a loan again. The reason for this is that when credit inquiries are made by loan companies, that information also goes on your credit report, and having too many inquiries does not look good on your record.
Some things you can do, in the meantime to work on improving your credit score include:
l Consistently make payments on time
l Pay off any credit card debt and then keep your credit card balances low from that point forward
l Be patient- rebuilding your credit takes time!
2. Be Realistic
Another important thing to keep in mind is to be realistic! If you don’t have great credit, don’t apply to lenders that only accept those with perfect or near perfect credit scores. If you do, you’ll just be wasting your time and making your credit score even worse in the process. This isn’t to say that you have to settle for cutthroat lenders who will give you terrible interest rates, but you shouldn’t waste your time on lenders that probably aren’t going to take a chance on you.
Avoid Major Banks if Your Credit is Bad
As mentioned, you can and should work to improve your credit score. However, it’s important to understand that, no matter how valiant your efforts at improvement, credit is not something that improves overnight. As such, if you can’t realistically bring your credit score above 700 or so, you’ll want to avoid lenders with which you don’t have much of a chance.
This includes major banks, which typically only lend to those with very good credit. You can try smaller or newer banks, but do keep in mind that this can sometimes be risky if the bank isn’t very well established.
Find a Specialty Lender if Needed
If you find that you’re exhausting your options for a loan and are getting nowhere, your best bet may be to look into lenders that specialize in helping those with poor credit ratings. These lenders can easily be found through a simple online search and are often wonderful avenues for building up your credit because, if you take out a personal loan with one of these companies and pay it off on time, that will improve your credit immensely!
3. Be Selective
While, as discussed, getting a personal loan with not-so-great credit can be difficult, that does not mean that you should jump at the first lender who offers to work with you without checking them out.
Sadly, there are many scam artists out there, as well as illegitimate companies that want to get as much money out of you as they can. You should never have to pay upfront to take out a loan, nor should you work with companies that have poor histories and lots of complaints from consumers. Take the time to thoroughly research and check out any lender you are considering doing business with.
Only Work with Licensed Lenders
True, reputable lenders will be licensed as lenders in your state or, if you’re choosing to take out your loan online, in the state in which they are located. As such, check the licensing bureau in the correspondent state to make sure that the lender you are considering working with is fully licensed and legally allowed to extend loans. If not, run in the other direction, no matter how good the loan terms sound. You don’t want to get yourself roped into a scam or end up paying exorbitant, unfair fees.
Check with the Better Business Bureau
Another thing you can and should do is to check out your lender with the Better Business Bureau. This organization, more commonly known as the BBB, maintains online listings of all of the businesses associated with it.
When you look up a lender’s BBB listing, you’ll be able to see any complaints or charges filed against the company, both past and present. Most lenders are bound to have one or two complaints filed against them, but if there are lots of complaints, especially if they are all related to the same thing, you’ll know you’ve found a lender you absolutely do not want to deal with!
4. Don’t Try to Borrow Too Much
Another thing to keep in mind, especially if you’re getting turned down repeatedly, is that you may just plain be trying to borrow too much money. Often times, people will apply and apply for loans and continually get turned down. Then, they’ll change the amount they’re asking for and get approved instantly; sometimes, just lowering your expectations a little bit can end up helping a whole lot!
Consider Your Income
When you’re deciding how much to try and borrow, make sure you consider your income because your lenders certainly will. Lenders always check to see how much you bring in per month, and if they don’t think that, based on your income, you can realistically make your required loan payments, they absolutely will not give you a loan.
Furthermore, borrowing outside of your means, even if you do get approved, is just going to spell trouble for you! Look at how much you make versus what your expenses are and be honest with yourself about how much you can realistically afford to pay in loan fees each month. Then, with that figure in mind, ask for a realistic loan.
Consider Your Debt
Lending companies tend to look out for other creditors. Thus, not only will they consider your debt level when deciding whether or not you qualify for a loan, but they’ll also consider it when trying to determine whether you can afford to pay back a particular loan amount.
So, when you’re tallying up all of your expenses to try and think of how much to ask for, consider your debt and the payments you should be making to pay off that debt. You should be able to make your loan payment, pay your bills, and pay down all your debt, no matter how old it may be.
The amount you should ask for (and reasonably expect to get) is an amount that you can pay back while still juggling all of these other very important responsibilities.
5. Have a Good Reason
Finally, make sure that you have a good reason for borrowing money. You shouldn’t borrow money just because you’re feeling a little broke lately or for a frivolous reason. To begin with, that’s not going to help you or your credit in the long run, and furthermore, many lenders will ask you flat out what you plan to do with the loan money, and if your reason isn’t a good one, they’re not likely to put themselves on the line by extending credit to you.
No Impulse Loans!
One of the big no-no reasons for asking for a loan is because of some kind of impulse purchase. So, if you’re trying to get a loan because you just saw a car you suddenly can’t live without or you want to take a frivolous vacation, put the thought out of your head.
Impulse loans are almost never used for good purposes, and they’ll likely end up hurting you in the long run. Even if you can pay them off, you’ll usually do so with money you could have put to much better use, so don’t give into the temptation of the moment.
Think of the Future
Ideally, when you take out a loan, it should be for something that is going to help you in the future in some way. Taking out a loan to go to school and get an education, for example, is a smart thing to do. It’s also smart to take out a loan to start a business or to take out a loan to pay off bad debt. All of these things are things that will help you financially in the long run and lead to a brighter future. If you can’t see the loan helping you in the long-term, then you probably don’t need to be applying for it in the first place, and, if someone gives it to you, it’s going to be at a very high rate of interest!
Finally, be honest about the reason that you are applying for the loan. See, most lenders, at least the good ones- the ones you should be working with- are on your side. They want you to pay off your loan and to have a better, brighter financial future ahead of you. Thus, they’re not going to give you a loan that you don’t need. If you aren’t honest with them about why you need it, they might give it to you, but it’s not going to be doing you any favors.
Furthermore, if you’re not honest from the get-go, your lender typically will find out, and thus, they’re probably not going to help you if you do run into a tough spot and need to make payments late or skip a month or two of payments. Dishonesty will only come back to bite you in the end!
As you can see, there are ways to get a loan and to get a loan that actually comes with a decent interest rate. Follow these tips and work hard, and, if you actually do need the loan, you can end up finding one that suits you both now and in the future.