A poor credit report never works in your favour. It will raise doubts and concerns about your repayment capacity. Lenders often hesitate to approve an application from a subprime borrower. If they sign off on your application, they will assess a high rate of interest. It is quite hard to qualify for loans for people with bad credit. Not only will your lender restrict the lending amount, but they will also charge high interest rates.
Tips for having a bad credit loan approved
Fortunately, there are certain ways to increase your chances of getting approved for a loan despite a bad credit rating:
Review your credit file
Do not assume that lenders and credit reference agencies cannot make mistakes. It is likely that your credit file consists of some accounts that do not belong to you. It might be a matter of identity stealing. Sometimes, lenders fail to report the settlement of a debt, and hence, your credit report shows an outstanding account despite the full payment.
Before applying for a loan, you should be aware of your credit civil scores file. If you see any misconceptions on your credit civil scores report, you should dispute them. It may take a month for approval. Make sure that you check credit reports from all credit reference agencies because you never know which credit bureau your lender will contact.
Look for bad credit lenders
Not all lenders accept applications from subprime borrowers. Therefore, you must consult a lender who targets bad credit borrowers. Contacting such lenders can increase your chances of being accepted. When applying for a loan from bad credit lenders, ensure that your credit score is not less than the bare minimum that they have set for approval criteria.
Pay off your existing debts
Most of the time, lenders fail to sign off on your application because of your existing debt. No lender would ever lend you money when they find that you have already taken on too much debt, and chances are, you would not be able to pay off your debts.
When your credit rating is bad, you should ensure that you do not have any other debt. Any outstanding debt will work against you. Even if you are to take out short term loans for bad credit, you should avoid having any other debts. In fact, you must not have any credit card obligations at the time of taking out bad credit loans.
Provide a stable income source
In order to increase your chances of qualifying for bad credit loans, you should provide a stable income source. Due to your poor credit score, your lender will set higher interest rates. It will increase the size of your monthly instalment. Of course, a lender would ensure that you have a healthy repayment capability. Therefore, you must increase your income sources.
If your current income is not sufficient, you should try to have a side gig. Babysitting, pet sitting, Uber driving, and walking dogs are some of the side gigs that you can consider. In addition, you can also consider looking for a contract-based job, a part-time job, or freelancing. When your income sources are high, you will certainly be able to qualify for a loan at lower interest rates.
Provide collateral
If you are trying to borrow a big amount of loan, your lender will most likely decline your application. This is because the insolvency risk is excessively heightened. In such cases, you should try to guarantee your loan against a valuable property. Securing your loan against a valuable asset will improve your chances of getting bad credit loans approved. This is because your lender can repossess your assets to recover their money.
Arrange a guarantor
Securing a bad credit loan is quite challenging and risky because if you fail to meet your obligations, you will end up losing your assets. Therefore, you should try to arrange a guarantor. A guarantor could be anyone, your spouse or friend. However, they must have a good credit rating.
A guarantor loan for bad credit carry lower interest rates because your lender calls on the guarantor to repay the debt. Having a guarantor reduces the risk on the part of a lender.
Avoid multiple loan applications
Just because you need money urgently, it does not mean that you will apply to multiple lenders at the same time. Doing so will result in lowering your credit score because each time a hard inquiry is recorded on your credit report, it will continue to appear for two years. Apply to another lender only when your application has been turned down.
Improve your credit score
Even though you can take out a loan with a bad credit rating, it does not insinuate that you do not need to make efforts to improve your credit score. Make sure that you do not carry an outstanding balance on your credit card and do not miss payments of your debts.
Borrow less
Lenders will most likely be indisposed to approve your application for a large amount of loan when your credit score is bad. Therefore, you should try to borrow less money. Borrowing a small amount of money will increase your chances of getting approved for a loan despite a bad credit score.
The final word
It can be difficult to have a loan approved with a bad credit rating. In order to improve your chances, you should try to arrange a guarantor or collateral, improve your income sources, look for bad credit lenders, and avoid multiple loan applications. However, despite that, you should try to improve your credit rating. Talk to a financial advisor if you are unable to do so.
Sarah Jones is a seasoned financial writer with over a decade of experience covering personal finance loans, and dedicated to provide the best lending solutions to the clients. Known for translating complex financial topics into accessible insights, Sarah contributes to leading loan providers like Arbitrageloans and contributes to the company’s growth via professional writing and loan guidance. She holds a degree in economics and is passionate about helping aspirants with tools to make informed loan decisions. She also loves to explore the world and its natural beauty. Sarah believes financial literacy is the base of legitimate lending and borrowing. She strives to make it understandable for all.
