Finding a personal loan with bad credit can be challenging. Personal loans are typically not secured by collateral and represent higher risk to lenders if they're not repaid. Other than borrowing money from friends and family, where can you find the cash you need? If your credit isn't in good shape, there may be ways to borrow a personal loan, but you may need to put up your car or other collateral as security.
Finding a Bad Credit Personal Loan
Start with your bank or other financial institution
If you have a checking or savings account, your bank may be more willing to approve a personal loan. If you can get a small personal loan and pay it off on or before its due date, this can help you improve your credit and qualify you to borrow larger amounts.
Get a cosigner
Asking a family member or close friend to cosign a personal loan can put your relationship at risk if you fail to repay your loan, but it may be the only alternative if you need cash in a crunch. Before asking someone to cosign a personal loan contract, be very sure that you can repay the loan according to the lender's terms. Late or missed payments will cause the lender to contact your cosigner. If your cosigner makes payments on your loan to save his or her credit, you can expect problems with your relationship. One huge advantage of using a cosigner, though, is that the interest rate will be much better assuming the cosigner's credit is good or excellent.
Ask about a secured personal loan
You may be able to use your car as collateral for a personal loan. Not to be confused with costly short term auto title loans, a secured personal loan can provide lower interest rates and the opportunity to demonstrate your creditworthiness. Once you've repaid your secured personal loan, the lender will remove its name from your car title. Secured personal loans may not be an option if you're making payments on your car.
Watch Out for Expensive Short Term Loans
You've heard about how easy it is to use your car title or pawn valuable items for cash. While these options may work in an emergency, the Federal Trade Commission advises they are very expensive and that you may find it impossible to repay such loans before your collateral is taken by the lender. In many cases, borrowing high cost loans when you're desperate only makes your financial situation worse. It may be worthwhile to swallow your pride and ask for help from a friend or family member before opting for a cash advance or payday loan.
In some cases, you may not qualify to borrow a personal loan if you have bad credit.
If your bad credit was caused by impulsive shopping or other money management mistakes, contacting a credit counseling service to fix your financial problems may be your best choice before borrowing more money. HUD approved housing and credit counseling agencies can help you establish a cash-based budget according to your income and obligations. If you can afford to repay your creditors, credit counselors can work with your creditors to develop affordable repayment arrangements. While credit counseling services typically require you to close active credit card accounts, their debt management programs can provide a fresh start without the problems associated with filing bankruptcy.