Around 16% of Americans have a bad credit rating, which means we must take a different approach if we want a loan.
We fall into the trap of thinking that it’s impossible to get a loan with bad credit, but that isn’t the case. In fact, we end up missing out on opportunities because we haven’t been taught what to do.
If you’re desperate for a loan and feel like there’s no hope, don’t worry because we’ve got the answers. Here’s how to apply for a loan with bad credit.
Check Your Credit Score and Report
When applying for a personal loan with bad credit, take a look at your current credit score. You’re entitled to a free report every 12 months from sites like Experian and TransUnion. Once you receive the document, you can see whether there are negative marks or if any debts are hindering your score.
Create a Budget
If you’re struggling with debt consolidation, check whether a personal loan is viable.
Calculate the monthly payments and create a budget that’s realistic. Don’t worry if it’s currently unaffordable, simply prepare for big purchases and wait until you’re in a better financial situation. For instance, you could ask friends or family for a temporary loan.
Get Your Financial Documents Ready
Whether you need cash for emergency expenses or rent, gather financial documents that lenders want to see. This includes your ID, contact details, and W-2 forms from the last two years. If you can’t find proof of your salary, ask your employer to use a paystub generator and print off your paycheck.
Add a Co-Signer
Although it’s not always necessary, finding a co-signer will improve your chances of securing a loan. This is someone who agrees to the loan and will pay the lender back if you can’t. Finding a co-signer is a lifesaver if you have a bad credit score and are constantly getting rejected by lenders.
Know What to Avoid
Regardless of your credit score, everyone deserves a decent loan.
A common issue is that many loans have high-interest rates. Many lenders hike the price because those with bad credit are considered a gamble. So, before signing on the dotted line, use a personal loan calculator to see whether it’s a good rate.
You should also look out for hidden fees. For instance, many include application and closing fees that quickly add up. And don’t forget to read through the contract thoroughly, especially the fine print, as it can include penalty charges.
If you’re unsure, compare your options with a money-savvy friend and they’ll guide you through the process.
How to Apply for a Loan With Bad Credit
Now that you know how to apply for a loan with bad credit, it’s time to browse options.
There are many ways to secure a loan, such as checking that you can afford the monthly repayments and being transparent about your financial situation. You can also add a co-signer and always compare options to find the best fit. Good luck!
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