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Personal Loans for low credit are an option for people whose credit reflects some financial missteps or people who haven’t had time to build a credit history. Bad/Low credit refers to a low credit score or a short credit history. Things like late payments or maxed-out credit cards can lower your credit score. Many lenders are hesitant to lend to people who have a low credit score as there is a higher risk of them defaulting on the payments. A low credit score is an indication of the low repayment capacity of individuals and hence, these individuals find it challenging to find a lender who will offer them a loan.
FICO calculates your credit score using five pieces of information:
If your finances fall short in one or more of these areas, your score will drop. For instance, having a history of late payments will have a huge impact on your score, since payment history contributes the most to your score. Things like bankruptcies, foreclosures and high amounts of debt relative to your income could also result in a bad credit score.
Before you decide to availing bad credit loan, ensure that you bear the below-given points in mind:
Getting a personal loan with bad credit isn’t impossible, but it requires diligent research to find the most affordable loan possible. Here are a few steps to get a personal loan if you don’t have strong credit.
Right after the credit score, it is income that is considered by the lender. One of the ways of getting personal loans for bad credit is by proving that you are eligible and capable of the EMI payments. If you are able to convince the lender that you have a regular and stable job, the chances for approval are higher.
Personal loans for bad credit can also be achieved with the help of a co-signer or guarantor. Applying with the help of a co-signer will make the lenders consider the co-signer’s credit score, thus improving your chances of approval. Similarly, securing a guarantor will increase the confidence of the lender that you will not default on your loan payments.
Another secure way of personal loans for bad credit is by pledging collateral. Collateral is just like a guarantor except it is an asset that is attached with the loan. On failure of payments, the lender has the right to sell the collateral and realise it to get back the loan amount.
If you have a poor credit score, the chances of approval for any kind of loan are less. However, personal loans for bad credit can be possible if you ask for a lower personal loan amount. This will further reduce the risk of borrower default as the lender has to give a lesser amount.
A lot of times, errors and mistakes on the credit report can lead to a poor credit score, thus affecting credit possibilities. Check your free credit report online once a year to see if there are any errors or mistakes that you must report.
There are limited alternatives that you can consider before opting for a bad credit loan. These options are:
FundsTiger can arrange loans from almost all the banks. You can apply for an attractive offer with the best possible rate of interest and terms for Personal Loan, Business Loan, Home Loan, and Car Refinance Loan.