How To Get A Loan With Bad Debt
Getting a loan seems almost impossible with bad credit. Your unfavorable credit status will make you a high risk customer to all major lending institutions, banks and credit unions. All lenders rely on credit score when picking borrowers and calculating the rate and term of a loan deal. Until and unless lenders are guarantees that their loan will be paid back, they are unlikely to approve your loan application. Therefore, when you have a poor credit status, you will have to search for source of financial help despite credit status.
Warning Signs For Bad Credit
In order to understand how your credit status is going to effect the loan options available, you should first understand what actually your credit score is. You can collect free credit scores from several online websites.
There are several common signs of a bad credit score that include-
- You are charged higher interest rates compared to what you see on advertisements.
- You have been making minimum payments on your credit card bills.
- You have a history of late payments
- Your have overdrawn your checking account
- You have problem receiving a lease for housing
- You were denied contract from the cell phone companies.
All such negative effects will make it even more difficult for you to get a loan. There are various options available if you have bad credit and need a loan. All you will need is some time and do researches so that you can find the deal that best suit you.
Visit A Credit Union
When you are unable to get a loan through traditional lenders, you can count on the credit unions. They are similar to commercial banks in terms of the services they offer, but they are nonprofit institutions and are owned by their members instead of shareholders who only seek profit. They are more likely to look beyond your credit history and offer you a loan with low fees and borrowing costs and better customer service regardless of what your current credit score is. With the number of credit unions available, you are likely to find one willing to work with you.
Borrow From Family Or Friends
If you are unable to get a loan from traditional lender, you can consider borrowing from friends or family. It can be a judicious decision when you have bad credit. But you should understand that if you fail to repay back the borrowed money to a close relative or friend, it will have bad effect on your relationships, which can go far beyond an unfavorable credit report.
Nonetheless, borrowing from someone you know is one best source of funds. Remember to always treat such loan just as if it would have been when you borrow a loan from a lender or a stranger. Everything should be formalized with complete and correct documentation and should be legally recorded. In order to avoid problems in future you can also create a written contract that will include everything about the loan term, interest rates and the about consequences if you are unable to repay the debt on time.
Find A Co-Signer
If borrowing from a friend or family is not possible, you can try approaching someone who has a good credit to become a co-signer. The lender will provide you a loan with terms and rates based on the credit score of the co-signer who will also be equally responsible for payment. The complete repayment information will get recorded on your as well as co-signer credit report. So, if you fail to repay, it will damage the credit score of your co-signer as well. But by making timely repayment you can improve your credit score and make it possible for you to obtain loan in future without a co-signer.
Application Process For Bad Credit
When your loan application has been declined repeatedly due to bad credit, you can request the lender for an in-person interview and you can try to convince them about your creditworthiness. Make sure you provide the documents to prove you are a good risk and the reasons why your credit score is bad. Some of the documents that you can provide include tax returns, details of your job history, list of unsecured debts if you have any, bank statement and whether you receive or pay for child support or alimony.