Guide to Securing Personal Loans with Low Credit Scores
This article offers a comprehensive guide for individuals with poor credit seeking personal loans. It explains loan options, differences from payday advances, tips for pre-application, and steps for securing loans. Key lenders and safe practices are highlighted to help borrowers make informed decisions and improve their borrowing experience.
Guide to Securing Personal Loans with Low Credit Scores
What are bad credit personal loans?
These loans are targeted at individuals with a FICO® score below 640, usually below 600 qualifies as poor credit.
If your score is 600 or lower, securing a loan can be more challenging, and lenders may be cautious.
Such loans generally have higher interest rates to compensate for greater risk.
These loans typically feature shorter repayment periods compared to those for borrowers with high credit scores.
Differences Between Bad Credit Personal Loans and Payday Advances
Both types assist individuals with poor credit, but they differ significantly:
Payday loans are small, often under $500, whereas bad credit personal loans can range from $1,000 to $50,000.
Interest rates, or APRs, tend to be higher on payday loans—often over 36%—while personal loans usually have lower rates.
Payday loans are short-term, typically due by your next paycheck or within four weeks. Personal loans can have terms up to five years.
Personal loans offer more flexibility and repayment options compared to payday loans.
Though payday loans are easier to access, they come with higher risks. Bad credit personal loans, while more involved to obtain, are safer.
Repayment for payday loans is usually soon after your paycheck, with missed payments incurring extra fees. Personal loans have similar fees but are generally less costly.
Exploring Alternative Payday Loan Options
Alternative payday loans often come with higher interest rates, sometimes reaching 400%, compared to typical bad credit personal loans.
They usually provide longer repayment periods than standard payday loans, which are often capped at four weeks.
These lenders often offer better features and more flexible terms.
Individuals can extend repayment periods, but additional interest charges apply, unlike traditional payday options.
Pre-application Tips for Borrowers with Bad Credit
Review your credit report for errors before applying.
Plan your repayment and aim to pay off your loan promptly.
Compare offers from multiple lenders and avoid settling for the first one.
Where possible, try to pay the loan early to reduce interest costs.
Avoid scams—never pay upfront fees to unverified lenders.
How to Secure a Personal Loan with Poor Credit
Pre-approval: Get pre-approved to understand your available options and terms.
Decide loan specifics: Choose the amount, repayment period, late fees, and repayment schedule; review all terms carefully.
Credit inquiry: Applying involves a credit check that may temporarily lower your score. Limit the number of applications.
Maintain timely payments: Making on-time payments will help improve your credit profile.
Recently, lenders like Avant, LendingPoint, and Peerform have expanded lending options for individuals with poor credit to access personal loans.
