How to Get A Loan With Bad Credit
The information in your credit report, such as your credit usage, payment history, and credit checks, is used to calculate your credit score. A credit score that falls between 580 and 669 is considered “fair,” whereas a credit score that falls below 580 is considered “poor.” Lenders may not trust borrowers with a poor or fair credit score, which makes it difficult to secure new lines of credit. Fortunately, it is possible to get a loan with bad credit. Here’s what you need to know:
Secured vs. Unsecured Loans
There are two main types of loans: secured and unsecured. A secured loan is supported by personal property that is used as collateral, whereas an unsecured loan is not. It’s riskier for lenders to issue unsecured loans—especially to borrowers with bad credit—since no personal property is used as collateral. For this reason, lenders rely heavily on a borrower’s credit score when determining whether or not to issue a loan.
However, there is less risk involved with secured loans. If a borrower stops making payments, the lender has the option of taking ownership of the collateral in order to repay the loan. Because of this, lenders will not hesitate to issue a secured loan to borrowers with poor credit. In fact, many lenders will not even check borrowers’ credit scores when they apply for a secured loan. The only thing that matters is that they have properties that can be used as collateral.
The bottom line: look for a secured loan rather than an unsecured loan if you have a fair or poor credit score.
Types of Secured Loans
There are several different types of secured loans for borrowers to choose from. The first is a savings-secured loan, which is secured by the money in your savings account. The money in this account will be frozen until the loan has been repaid, which means you won’t be able to touch it until you have completed making payments on the loan. If you stop making payments, the bank can take ownership of the money in your account.
Another type of secured loan is a car title loan, which is available to anyone who owns a vehicle. The title to your vehicle is used as collateral for a car title loan. But this does not mean that you will have to hand over the car keys to the lender. You are still allowed to use the vehicle even though it is collateral. The lender will only take control of the vehicle if you stop making payments on your loan.
There are also equipment loans, which are often used to finance businesses. These loans are supported by valuable equipment that belongs to the business, such as computers or heavy machinery. Most lenders will allow you to borrow up to 70% of the value of the equipment that is used as collateral.
Don’t let a fair or poor credit score prevent you from securing a new line of credit. Use this guide to quickly get approved for a new loan despite your low credit score.