It can be easy to overstretch your budget in today’s fast-paced world, but pushing it too far can land you with a bad credit history.
This can make it more difficult for you to gain access to additional credit when you need it, especially from traditional lenders like banks and credit unions.
Fortunately, there are still a number of options available to you for getting a loan with bad credit.
Short-Term Cash Loans
This type of loan, also called a payday loan, is a good option for a quick influx of cash. These loans are typically for amounts up to about $5,000.
The advantage is you won’t need to pass a credit check to qualify. Most lenders will ask to see your most recent paycheque to verify your income.
It is important to note, though, that payday loans tend to have incredibly high-interest rates.
The assumption is that you will repay the loan once you get paid. You should do your best to get the loan paid off as quickly as possible to minimise your interest costs.
Bad Credit Loans and Specialty Loans
Some lenders focus specifically on those with bad credit. These lenders usually understand that people can end up with bad credit for different reasons and that you can still be a responsible borrower, even if you have a couple of mistakes in your credit history.
With these lenders, the qualification criteria tend to be more flexible than what you’d find at traditional financial institutions. Lenders will look at your full credit picture, including your income and other financial obligations.
Interest rates on bad credit and specialty loans are often higher than the norm, so it is in your best interest to repay the loan as soon as you are able to do so.
Debt Consolidation Loans
A debt consolidation loan may not reduce your total amount of debt but it can shrink your monthly payments and help you save on interest. This type of loan pays off all of your existing debts, combining them into a single, new loan.
You’ll then have just one monthly payment instead of several, and you may qualify for a lower interest rate than what you were previously paying.
If you stay on top of your repayments for the new loan, you’ll be able to see the improvement in your credit rating over time, making it easier to qualify for future loans.
Secured Personal Loans
In the secured personal loan structure, you can use your car, home or another big-ticket item as collateral for the debt.
Basically, this means that if you fail to repay the loan, the lender can claim your collateral as payment.
This is fine as long as you can afford your monthly repayments, but you’ll want to be sure that you can manage your repayments and eventually repay the loan.
Guarantor Personal Loans
This is an especially popular option among younger borrowers. With this type of loan, someone else will sign on as guarantor, often a parent, grandparent or close friend.
In the event that you cannot make your repayments, your guarantor will be responsible for making the repayments on your behalf.
Improving Your Chances of Getting Approved for a Loan with Bad Credit
While it is definitely more difficult to get a loan when you have bad credit, it is not impossible, and there are steps you can take to boost your chances.
For starters, check your credit file so you know what it contains. It is free to check your own credit and it won’t impact your rating.
This is also a good opportunity to address any errors or discrepancies in your file that might be harming your credit rating.
You should do plenty of research into potential lenders and loan types before applying as well. Be sure to take note of the qualification requirements to ensure you meet the criteria.
Try to avoid applying for loans that you think might be a stretch, as multiple applications, especially if they are rejected, can damage your credit history even further.
It may seem as though you are stuck in the financial hole of having bad credit, but rest assured that it will get easier.
When you do get a new loan, make a point of making all of your repayments on time. Over time, your credit rating will improve, giving you more flexibility in terms of future loans.
Get in touch with us today to get started.