Getting a Loan with Less-Than-Perfect Credit
About one in every three Americans has bad credit. Are you one of them? Many of us with less-than-perfect credit in Arizona have come to accept our bad credit as a part of who we are and just tend to avoid our credit score or anything that requires it, but there’s only so far you can get without it.
Your credit can keep you from qualifying for a car, a house, or even a job, in some cases. But just because it’s harder to get a loan the lower your credit score is doesn’t mean all is lost!
Weighing Your Borrowing Options
Only you know your borrowing needs and your ability to repay, but it’s important to know what options you have available to you before coming to any kind of decision. But when your bank account is running on empty and your credit score is already low, where do you get the money you need?
Those of us who have been broke - like the transaction fee will incur an overdraft fee kind of broke - know how expensive it can be when you don’t have the cash you need when you need it. The first step to weighing your options is determining what they are. That way, you can determine whether or not the higher interest rates are worth avoiding the penalties of the broke tax.
Fortunately, there are still ways to get the cash you need to make ends meet when an emergency expense comes up, even for those with credit scores of 600 and below. If you have a low credit score and you need money now, check out these 10 loan types you can get, even if your credit score is on the low side.
10 Loans You Could Get, Even If You Have Bad Credit
1. Home-Equity Lines of Credit (HELOC)
If you own your home but you have poor credit, a home equity line of credit (or HELOC) could be the right choice for you. You will have to have some equity on your home to borrow against it to begin with, but qualifying for one isn't as stringent a process as other alternatives.
Fortunately, you could even qualify for a HELOC if your credit is less-than-perfect. Your ratio does need meet a loan-to-value (or LTV) of 80% to get one, but it’s essentially the same amount you’d need to qualify, even if your credit is stellar.
While the interests are generally a little higher than your average refinance loan, they may be less pricey than other loans on the list. But it's something to think about very carefully since the collateral is your house. As with any loan agreement, you want to make sure you review and approve the terms before you proceed.
2. Secured Loans
Secured loans are borrowing options that use a piece of property (like your home in the case of a HELOC). That means homeowners or car owners could use their property to secure their loan, even if their credit score leaves something to be desired.
It’s a lot easier to qualify for loans when you have collateral, and interest rates also tend to be a little lower. This might translate to longer loan terms, but with lower payments, you may be in a better position to make sure your loan works on your terms!
3. Title Loans
Do you own your vehicle? If you own your car outright, that means your wheels could mean more than just a way to get from A to B.
When you get a title loan in Phoenix, the lender will have your car appraised and offer you its value to borrow against. Car owners with bad credit can still qualify as long as they own their car and there are no liens on it!
4. Credit Union Loans
Are you part of a credit union?
If you are, you may already know some of the perks. But if you aren’t, it might be a good idea to look into what you may be missing out on!
The great thing about credit unions is that they can offer their members loans and other financial services for a lot less than your typical local bank would. You could get more favorable terms and interest rates through their credit unions as opposed to rates from a traditional bank.
Since you already belong to the credit union, they already know that you’re good for it, so they won’t make you jump through too many hoops to get the money you need (or to pay it back, for that matter). You may even qualify for unsecured loans in Arizona, regardless of your credit.
That means, if you already belong to one, chances are you could get a loan for much less money and trouble than you were expecting. If you’re already a member, check with your credit union to find out how you could qualify! You’ll be glad you did.
5. Peer-to-Peer Loans
Banks are so impersonal - don’t you wish there were some way to skip all that awkwardness and inconvenience of going to your local bank? Don’t you wish there were a way to get a loan, one-on-one? That’s where P2P lending comes in.
Peer-to-peer loans are the new way to lend and borrow from individuals and investors, and they could mean getting the cash you need, regardless of your credit. Peer-to-peer services like Lending Club and SoFi make it so those of us with extra cash can lend money to individuals or businesses that need it.
The best part is while having good credit can always help, you have a bigger pool of lenders to choose from, so you don’t feel as limited in your choices. Use a P2P lending service to find out just how many lenders are ready to provide the cash you need!
6. Get Someone to Co-Sign
If you don’t have great credit, but you know someone who does, they may be your ticket to the loan money you need in Arizona. When you have a great relationship with your co-signer, and you’re both 100% confident in your ability to repay, you may want to ask them to help you with getting a loan by getting them to co-sign for you.
It’s really important to go into this kind of arrangement with a clear plan in mind to make sure you don’t miss payments along the way. That’s because, if you do find yourself short of cash later, that means your co-signer foots the bill. Worse yet, both your credit scores could suffer for it!
Finding someone who’s willing to take that risk and invest in you can be easier said than done, but if you go in with a game plan, it may be the best way to make that jump. A friend or family member who knows you and believes in you could be the difference between you getting the money you need when you need it and playing broke tax roulette.
Will it be an overdraft fee? A transaction fee? A bounced check? If someone close to you knows you’ll be good for it, it could save you a lot of time and trouble.
7. Borrow from a Family Member or a Friend
Like the idea of a con-signer but want to cut out the middle man? If you have friends or family that have extra cash, why not ask to borrow from them directly? If you know someone who’d be willing to co-sign for you anyway, but you’re worried about your ability to make your payments or time interfering with your credit, this might be a better option for you!
It might be a little painful to ask in the first place, but your friends and family love you unconditionally, and the same just can’t be said for your bank. Not paying it back on time can sour a relationship with your friends or family, so you don’t want to make this decision lightly. But no one else is going to offer you interest-free money like they will!
8. Payday Loans
So, you’re spooked by secured loans, but you don’t know anyone who’s willing to co-sign or lend you the money you need outright. If you’re looking for an unsecured loan option and you don’t already belong to a credit union, payday loans might be for you.
A lot of payday lenders can give you money a lot faster than traditional loans from your bank and aren’t looking for a car or home as collateral. They may end up costing a little more, but if you’re confident that you’ll be able to make the difference (that is, pay off your loan amount and any fees) it could spare you from the late fees and overdrafts (not to mention the hits to your credit) that result from not having the cash you need when you need it.
Just be sure to go with a lender you trust, especially one that has deep ties to your community in Arizona and good reviews from borrowers like you. You want to make sure that your lender is going to be there for you when you need them. If your lender’s got good reviews and rates, and you prefer not to worry about putting your possessions up as collateral, a payday loan could be exactly what you’re looking for, regardless of your credit.
9. “Bad Credit” Loans
While this may not be the most ideal choice, using lenders that specialize in “bad credit” may be the only method in sight after other lending options have fallen short of your needs.
These loans may seem easier to qualify for, but don’t go in unaware: make sure you understand the rates and fees before getting caught up in that paycheck-to-paycheck cycle. Double, triple, and quadruple check that you can pay it back in the agreed upon time. Don’t make a decision to go into a “bad credit” loan lightly, and make sure that you have a solid plan for repayment to avoid getting burned.
10. Retirement Account Loans
We’ve put this option at the very bottom of the list because it’s more of a panic button in case of an emergency. That’s because of the high tax rates and penalties for early withdrawal that come with it. But it can still help you make the best out of a bad situation.
If you have a 401(k) set up for your retirement plan, and you’ve already explored your other options, you may be able to borrow against it. That could also mean paying the interest back to yourself when it comes to repaying it. Just be sure to take a loan as opposed to a distribution; this will help you reduce taxes and penalties.
If You’re Still Concerned About Improving Your Credit
Still worried about your credit? While your unique credit history will determine how much work it will take to do so, the good news is you can always improve your credit!
The first step to fixing your credit score is knowing what it is, and knowing where you stand. Fortunately, there are plenty of apps and services you can use to see exactly where your credit is now and how it got there so you know where it could use some help. But it’s not enough to check your credit score - you need to stay on top of it, too.
Check Your Credit History for Discrepancies
One in five Americans were surprised to find errors on their credit reports. Will you be one of them? If you’re still concerned about your credit, there’s no time like the present to improve it! And the next step to improving your credit score (after finding out what you score is in the first place) is to find out if it’s really an accurate account of your credit profile.
You can check your credit through the three major credit reporting agencies for free once a year - so, what does your credit history have to say about your lending risk? Credit.com also offers an easy-to-read Credit Report Card to break it all down in simpler terms. Credit report mistakes could lead to all sorts of unforeseen issues like higher interest rates and insurance premiums. They could even keep you from qualifying for the car, home, or job of your dreams.
Don’t Let Mistakes Ruin Your Credit
Of the consumers who have disputed credit report errors, almost 80% of them have been successful in correcting them. That’s good news for those of us who take a peek and see something that could be damaging our score, especially if it shouldn’t be. Don’t let bad credit hold you back! If there’s ever an issue with your credit score’s accuracy, a quick call could help you bring your credit score back from the brink.
When Improving Your Credit Isn’t Enough
No one knows your financial situation better than you do, so whether or not any of these options is right for you is going to come down to weighing out the pros and cons of each.
Nothing is going to improve your credit score quite like getting a secured loan or credit card and making your payments in a timely fashion. Keep those balances low, limit new credit inquiries, and you’ll see your credit score slowly climb its way back into good standing.
But if you’re dealing with a financial emergency that just can’t wait, and making payments consistently isn’t going to do the trick fast enough, these ten ways to borrow can help you get the cash you need when you need it. Which option is right for you?
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.