Sometimes the people who need loans the most have the hardest time getting them. If you have bad credit, you might think it’s impossible to get a loan, whether it’s for emergency car repairs, sudden medical bills, home repairs, or even to buy a house.
If you’ve been denied a loan due to bad credit in the past, you may think getting a loan or mortgage is beyond your reach. But in fact, you have more borrowing options than you think. There are many loans available for those with bad credit. Here are some of your best options if you’re having trouble getting a line of credit with your current credit score.
Check out some of the best loans for bad credit:
1. Home Equity Line of Credit
If you already own a home and have equity in it, you may want to consider getting a home equity line of credit. Doing this is not without risk since you are putting your house as collateral. Still, HELOCs are among the best loan options if you have bad credit.
If you need a bad credit home equity loan, it’s possible to get a tax-deductible line of credit at a reasonable interest rate and with no restrictions on how you spend your money. Keep in mind that there are limits to claiming your line of credit as a tax deduction.
To qualify for a HELOC, you will generally need to have a loan-to-value ratio of around 80% or less. Even if you haven’t paid off a significant portion of your mortgage, your home’s value may have increased since the Great Recession. Your lender will also want to make sure you have a good work history and a low debt-to-income ratio.
If you find yourself able to qualify for this type of loan, be sure to compare lenders to ensure you get the lowest rate available to you. As with most bad credit loans, interest rates on HELOCs tend to fluctuate over time.
Benefits of a HELOC
- You are entitled to some flexibility in the use of your funds.
- You will likely pay lower interest rates than credit cards.
- Adjustable rate HELOCs offer even lower rates.
Disadvantages of a HELOC
- You must pay closing costs.
- Your accommodation should serve as collateral.
- The bank can cancel your line of credit.
- You may have to pay a fee if you don’t use the line of credit right away.
Learn: How is interest calculated on a HELOC?
2. Loans for bad credit
If your credit is bad, getting a bad credit loan might be your only option. While it’s much easier to qualify for these loans if you have bad credit, be careful not to get caught in an endless cycle of debt. Since most bad credit loans have ridiculously high interest rates, you’ll need to be careful before going this route. Make sure it’s worth it for this type of loan.
Benefits of a bad credit loan
- Even those with bad credit can qualify.
- Getting pre-approved is easy.
Disadvantages of a loan for bad credit
- Interest rates are extremely high.
- Usually there is a limit to the amount you can borrow.
3. Loans to credit unions
It is much easier to get a loan from a credit union than from a bank since the credit standards of credit unions are often more flexible. In some credit unions, almost anyone can join; Membership eligibility is often as simple as residing in a particular location or being a member of a type of profession. Because credit unions are not-for-profit entities, they can offer loans and other financial services much cheaper than for-profit banks, and their level of customer service is often far superior to that of banks.
Benefits of a cash loan
- Credit unions offer more flexible lending standards than traditional banks.
- Fewer penalties and fees are applied than in traditional banks.
- Unsecured loans for people with bad credit are available.
Disadvantages of a cash loan
- Your credit score and type of loan limit the amount you borrow.
- Unsecured personal loans have shorter loan periods.
Read: PenFed Personal Loans Review – Low Rates and No Origination Fees
Credit Union Loan Rates vs. Bank Loan Rates
See how credit union rates compare to traditional bank rates.
|Credit Union Loan Rates vs. Bank Loan Rates|
|Type of loan||Credit unions (national average)||Banks (national average)|
|Unsecured fixed rate loan, 36 months||9.33%||10.09%|
|Home equity loan, 5 years, 80%||4.78%||5.24%|
|Home equity loan, LOC, 80%||5.10%||5.37%|
|Used car loan, 48 months||3.44%||5.31%|
|New car loan, 48 months||3.24%||4.82%|
|Data from NCUA.gov for September 28, 2018.|
4. Peer-to-peer lending
Peer-to-peer lending is a newer but equally reliable way to borrow money. These types of loans are usually set up from peer-to-peer lending sites such as Prosper, Lending Club, Peerform, and others. These websites allow potential borrowers to obtain loans from individual lenders rather than from banks or other financial institutions.
P2P lending has become an increasingly popular way to obtain loans for bad credit, although these sites have requirements for potential borrowers. Still, depending on your credit history, work history, and other factors, you may qualify for loans at rates as low as 5.24% APR from major P2P lenders. Keep in mind, however, that P2P loans are unsecured.
Benefits of P2P Lending
- This type of loan may be easier to obtain than one from a traditional bank.
- Interest rates are lower than credit card rates.
- You will pay fewer potential fees.
- You can explain to investors why you have bad credit.
- You will usually be able to borrow a larger amount than with a traditional bank loan.
Disadvantages of P2P Lending
- Lending sites have strict qualifications for borrowing.
- You need to raise funds from various borrowers.
- Rates can be as high as 31.7% APR.
- Depending on the lender, it may take two weeks or more to receive the funds.
Main rates of P2P lenders
Check out some of the best rates from peer-to-peer lenders:
|Main peer-to-peer lender rates|
|APR||6.95% to 35.89%||8.99% to 35.99%||9.95% to 35.99%||5.99% to 29.99%||Varied||6.99% to 14.10%||7.18% to 29.65%|
|Loan conditions||3 to 5 years||3 to 5 years||3 to 5 years||N / A||2 to 5 years||3 to 7 years old||2 to 3 years|
|Loan amounts||$1,000 to $40,000||$1,000 to $50,000||$2,000 to $40,000||$4,000 to $25,000||$2,000 to $35,000||$5,000 to $100,000||$3,000 to $25,000|
|Data accurate as of November 21, 2018.|
5. Co-signed loans
If a friend or family member with good credit is willing to co-sign a loan, you can get a good interest rate and loan term. Getting a co-signer when you have poor credit and need a loan may not be easy, unfortunately. You have to convince a loved one that you are trustworthy for a loan despite your bad credit history. Also, if you don’t repay your debt, your friend or loved one will be responsible for the debt, and your default will affect both the co-signer and your credit scores.
Benefits of a co-signed loan
- Qualification and conditions are not entirely dependent on your credit score.
- You can get a lower interest rate than you would get without a co-signer.
- More flexible terms might be possible.
Disadvantages of a co-signed loan
- You will be putting someone else’s credit rating at risk.
- You will put your relationship at risk with a loan.
- It can be difficult to convince someone to co-sign for you.
6. Secured loan
There are many types of bad credit secured loans, similar to a HELOC, in which you offer something that you own as collateral. Getting a secured loan backed by valuable assets — whether it’s your home, vehicle, or something else — can be easier for someone with poor credit.
Benefits of a secured loan
- Even those with bad credit can qualify.
- The repayment term is longer.
- Low interest rates are possible.
Disadvantages of a secured loan
- A guarantee is required.
- A longer term means you could get bogged down in debt.
7. Loan from a family member or friend
A loan from someone you know is probably the most difficult type of loan to apply for. Asking friends or family for a loan doesn’t depend on your credit score, but it can put an important relationship at risk. Getting a personal loan from a loved one should probably be your last resort. Only do this if you’re sure you’ve corrected your bad money habits.
It is also strongly recommended to draw up a loan agreement that clearly states the terms of the loan: interest to be charged, number and amount of installments and duration of the loan. Doing this before securing a loan from a loved one will avoid hurt feelings, damaged relationships, and even possible legal action. This type of loan arrangement requires good faith from both parties and should only be entered into if you are absolutely sure that you can repay the loan in full and on time.
Benefits of a loan from friends or family
- Approval and terms do not depend on your credit score.
- You could receive money instantly.
- You could have a flexible repayment plan.
- You might get a low interest rate, or none at all.
Disadvantages of a loan from friends or family
- It can be hard to get.
- You are putting your relationship at risk.
- You will probably only be able to borrow a small amount.
- You could face legal action if you don’t repay the loan in a timely manner.
Get your credit report and improve your credit score
The best thing you can do for your financial and credit health is to get a copy of your credit report and start improving your credit score. Because while you may qualify for these loans with low to bad credit, you’ll get much better rates and terms if you have better credit. Instead of getting stuck in a cycle of debt, improving your credit score and financial habits will help you pay off your debts and allow you to manage your finances well.
Click to read about 12 free ways to receive money from friends and family.
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Taylor Bell and Kristy Welsh contributed to the reporting of this article.