What to Remember When Looking for a Loan for Bad Credit

If your credit reports have derogatory remarks or your overall credit score is not that impressive, you are likely to feel discouraged when you start looking for a loan. The thing is that you can find loans for bad credit, but they won’t be easy to come by. Understand that a lender needs to feel confident about getting their money back, and one of many factors giving them a confidence-booster is your high credit score. Your bad credit history tells a lender how you’ve been using and repaying your credit in the past. Where good credit makes you a valuable customer, bad credit can do the opposite and make it extremely difficult for you to qualify for a reasonably good deal.

However, being difficult does not mean you should resort to extremely expensive forms of borrowing – many people opt for payday loans to meet their needs and end up hurting their credit history even more. Before you make a decision, here are a few things you need to know.

Know Who can Offer Loan for Bad Credit

Understand that anyone can choose to lend you some money, and the availability of many comparison sites has really made it possible to find those lenders. The thing is that lenders usually have their own specific cutoff credit scores. It means that sometimes you think your credit score is too bad to get a loan, but a lender might think differently because your score does not fall below their cutoff. 

Sometimes, lenders only consider your scores, but on other occasions, they might want to take a closer look at your credit history, and that is when they also consider your “debt-to-income ratio”, which can make it even harder to qualify for a loan and that too at a reasonable interest rate.

Tips to Qualify for a Loan

People with bad credit usually have a hard time finding the ideal loan by themselves, and they usually need to find a co-signer with a healthy credit to help them get a loan. However, it also makes great sense to take steps to improve your credit score. Even a slight improvement in your score can drastically increase your chances of getting a loan.

Improve Your Credit Ratings

Getting familiar with your credit reports and scores is the first step to take, especially if you have no clue where your finances stand. Once you know things are not that impressive, consider taking the following steps:

  • Be sure to make your current payments in a timely manner. You cannot change your credit history, but don’t let it stop you from changing your future. Making at least the minimum payments would really help improve your scores.
  • Keep your debt low. You should ensure the debt you owe is lower than your total credit limit. The goal should be to avoid over-the-limit or maxed-out lines of credit.
  • Improve your credit history length. It may sound counter-productive, but keeping your old accounts open can sometimes help you improve your credit score.
  • Avoid opening multiple new credit accounts. Doing it in a short time would make you look like a risky customer. You should open a credit account only when it is absolutely necessary to keep your finances under control.


Consider Types of Loans

It really pays off to learn a bit about the types of loans you can hope to get even when you have less-than-perfect credit scores. You can usually opt for two types of loans:

  • Unsecured Loans: Personal loans fall into this category and you usually need them to refinance debt with a  very high interest rate. You may opt for it also to deal with an unforeseen expense. It is usually not easy to obtain these loans and most unsecured bad-credit loans come with exorbitant interest rates.
  • Secured Loans:  A home equity line of credit falls into this category because collateral is used to secure the loan. While you may be able to get a secured loan more easily and that too at a lower interest rate, you put your collateral at risk if you fail to repay as agreed.

In case you really think you can manage a new loan better and even use it to improve your credit history, you may consider looking for a loan that allows a co-signer. You can ask someone with a healthy credit history to help you with this, as that would make it possible to get a bad-credit loan with a rather manageable interest rate.

When You Get a Loan – Eventually!

You will certainly have to go through some hassle to find a lender who’d be willing to help you when your financial situation is not that impressive. However, if you keep important tips in mind and end up finding a deal, be sure to remember the basics. There are actually a number of things to ask before you select a lender. Start by asking about the base interest rate and confirm if and when it changes or stays fixed the term and how will affect payments. Some finance companies take administration fees the first month and others the final. Ask about fees and enquire if there are any others because it alters your payment for that month and that could put your account into arrears. Find out how you are permitted to use your loan. This is especially true if you’re interested in buying a car and going for a bad credit auto loan. Can you buy from a private seller or can you only use authorized dealerships? To speed the process, ask which supporting documents they need before you start the application and if you can send them by secured email. Finally, you will need an idea of how long the process takes.


It all boils down to the fact that you cannot find a lender who’d ignore your credit score while forwarding you a loan. But, that does not mean you cannot qualify for a loan at all. You can certainly take so many steps to find a lender and even try ways to improve your credit score to ensure you end up securing a much better deal. Therefore, be prepared to do your research before you take the plunge!


The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.