Banks are burdened with loan requests on a daily basis and in order to differentiate between different loan request applications, a major contributing factor that banks and financial institutions is an individual’s credit score. A credit score is essentially a metric that lenders use to analyze whether a given party is worth giving a loan to, and whether they’d be able to successfully pay back those loans. Maintaining a good credit score – typically 750 or above – while is highly recommended, is often difficult. In order to maintain a good credit score individuals need to practice discipline, manage their money well and have good cash flow that would prove debt repayment.
Since maintaining a good credit score is difficult, many people find themselves with a bad credit score looking for a loan. According to title-loans.com, getting a loan for bad credit may be difficult, but isn’t impossible, and listed below are a few tips that will help people with bad credit get loans:
1. Research is key
In order to secure a loan with a bad credit score you need to broaden your horizon of searching for a loan. This is because the cut-off rates differ for different financial institutions and so does the interest rate. If you have a poor credit score, chances are that you’d have to pay a higher interest rate. Due to the incentive of getting a high interest rate, certain banks do offer loans to individuals with bad credit scores, and hence individuals should broaden their search. But don’t sacrifice your future peace and financial stability by compromising right now for an outrageously high interest rate – look for different options and financial institutions, and opt for the one with the lowest interest rate.
2. Speak to your banker
If you have a bad credit score owing to certain hardships in the past and can explain it, you should consider speaking to your banker. Since your banker may know you for quite some time, they would be able to understand your situation and hence offer a concession by pulling some strings in their branch. Your banker would be able to get you better credit terms despite your bad credit score if you show potential to pay back your loan in the required time. If you are able to convince your banker with your sincerity, your banker may be able to convince his/her seniors and grant you the required loan.
3. Choose a secured loan
If you do not want to be stuck with paying a high interest rate, you should opt for secured loans as opposed to unsecured loans. Since your loan would be secured with a substantial asset, you wouldn’t seem like a risky lender and hence wouldn’t have to pay a high interest rate. If the asset you place as collateral has a high liquidity, your banker would feel very comfortable giving you a loan despite a bad credit score. If a secured loan seems risky to you, you indeed are bad at managing your finances and hence have a bad credit score. You should consider getting a secured loan which would help you instill a good sense of financial responsibility in you.
4. Try to improve your credit score
If you can clear your existing debts such as your older credit card bills, any small loans, utility bills, etc. then you stand a good chance of significantly reducing your credit score in the short term. If someone else owes you money, you should check with them to return the amount they owe you and then use that money to pay your underlying loans. While some may argue that this is just a placebo effect manner of improving your credit score, it is in fact more than that as it shows your dedication towards improving your credit score and paying back your loans. Your banker is likely to view this is a positive light and hence your chances of getting a loan approval may increase significantly.
5. Add a guarantor to your loan application
If you have a bad credit score, consider applying for a loan with a guarantor by your side who has a good credit score. This gives the bank an incentive to give you a loan because the chances of you repaying your loan significantly increase. You can also consider applying for a loan jointly with someone else (a family member or a business partner) who has a good credit score. This way if you fail to pay back your loan, the other loan applicant or your guarantor would be liable as well. This increases your chances of getting a bank loan despite your bad credit score.
6. Think small
If you have a bad credit score, chances are that no bank would agree to give you a big loan because they would question your ability to pay it back. However, if you apply for a small loan you’d have some luck. If you are able to prove your trustworthiness and creditworthiness to your bank by repaying your small loan on time, chances are that they would consider your application for a bigger loan next time despite you having a bad credit score. Additionally, if you gain your banker’s trust, chances are that even if your own bank rejects your application for a bigger loan, your banker would recommend you to another banker and you would have your loan application accepted elsewhere. If you keep your hopes high and work hard towards securing a loan, the sky is truly the limit.
While it may seem difficult to get your loan application accepted keeping in view your bad credit score, it really isn’t. If you follow a few basic steps and are smart about your application, you would be able to secure a loan for yourself despite your bad credit score. You no longer have to cut back on your dreams of building your home, getting a new car, or buying absolutely anything else simply because you have a history of bad credit – if you are smart about your future financial decisions and act wisely on your current loan application, you are sure to secure a loan in no time.