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What To Know When Applying For A Personal Loan With Poor Credit

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When it comes to paying some of life’s biggest expenses—a home renovation, a large medical bill, an emergency, a wedding, or even a funeral—it can sometimes be easy to find yourself short of funds to cover these costs. And if your savings don’t reach the amount of money you’ll need to cover these expenses, you may need to find a way to cover the difference.

This is where a personal loan can come in handy. Personal loans are actually one of the fastest growing categories of debt in the US, in part because they offer flexibility that some credit cards don’t: low interest rates and the ability to receive a lump sum of money deposited directly into your bank account that can be used as needed.

When taking on any form of debt, it is generally best to apply for good or excellent credit in order to get the best loan terms and conditions. But if you find yourself applying for a personal loan with poor credit, there are still options for you – you’ll just need to keep a few things in mind before you begin the application process.

Can you get approval for a personal loan with poor credit?

Your credit history and credit score is important because it provides lenders with clues to determine if they think you will be a responsible borrower and will pay the loan on time and in full. Keeping your credit score in good shape can be really helpful when applying for loans for big purchases like buying a house or buying a car.

While it is possible to get approved for a personal loan if you have poor credit, the final decision, for the most part, rests with the lender you are applying to. Some lenders will tell you up front what their minimum requirements are. A personal loan for repayment requires, for example, a FICO score of 640 (which falls within the “fair” range) or higher for approval.

Some lenders will cater to those who have poor (or no) credit. It will accept entry-level personal loans, for example, with a FICO or Vantage score as low as 600, but will also accept applicants who have not built an adequate credit history yet. OneMain Financial also approves applicants who have poor or fair credit for their personal loan products. (See our roundup of the best personal loan lenders for more options.)

Upstart Personal Loan

  • Annual Percentage Rate (APR)

  • The purpose of the loan

    Debt consolidation, credit card refinancing, wedding, relocation or medical

  • loan amounts

  • Conditions

  • Credit required

    A FICO or Vantage score of 600 (but will accept applicants whose credit history is so insufficient that they do not have a credit score)

  • Incorporation fee

    0% to 8% of the target amount

  • Early payment penalty

  • deferred fee

    The greater 5% of the monthly overdue amount or $15

OneMain Personal Loans

  • Annual Percentage Rate (APR)

  • The purpose of the loan

    Consolidation of debts, major expenses and contingency costs

  • loan amounts

  • Conditions

  • Credit required

  • Incorporation fee

    Flat fees start at $25 to $100 or 1% to 10% (depending on your state)

  • Early payment penalty

  • deferred fee

    Up to $30 per late payment or up to 15% (depending on your state)

What interest rates do you qualify for?

When you apply for any form of credit, the better your credit, the more likely you are to get favorable terms – such as lower interest rates. This also applies to personal loans. If you have poor credit, you are likely to get a higher interest rate on your loan. This means that you will spend more money in paying off the loan.

Of course, the exact interest rate you ultimately receive will depend on the scope of the lender, but you can compare personal loans before you submit your application. This way, you can be sure that you get the loan on the best terms for you.

Compare offers to find the best loan

When looking for a personal loan, it can be helpful to compare several different offers to find the best interest rate and repayment terms for your needs. With this comparison tool, you will only need to answer a few questions so Even Financial can determine the best offers for you. The service is free, secure and does not affect your credit score.

Editorial note: The tool is provided and operated by Even Financial, a search and comparison engine that matches you with third-party lenders. Any information you provide is provided directly to Even Financial. Select He does not have access to any data you provide. Select may receive affiliate commission from partner offers in Even Financial Tool. The commission does not influence the choice of order of performances.

It’s also worth noting that in some cases, it may make sense to use a credit card with a 0% introductory period where you can fund your purchases and make payments against the balance without charging you any interest for a set period of time. The Citi Simplicity® Card, for example, gives you a 0% period for 12 months (after 14.74% to 24.74% variable APR). This option is only optimal if the credit limit is enough to cover your expenses, and you are sure that you can pay off the balance in full before the 0% annual percentage period expires.

How long do you have to pay off the loan?

The amount of time you have to pay off a personal loan is often referred to as the term of the loan. Loan terms can vary from lender to lender, just as do interest rates and credit score requirements. The good news is that this information is generally given up front so you can immediately consider whether the repayment schedule is right for you.

The term of the loan can be up to six months and as long as seven years. When you take out a loan that gives you more time to pay off the balance, you’ll likely have smaller monthly payments — but be aware, though, that the longer term means you’ll end up paying more interest over time. On the other hand, shorter tenures can result in a higher monthly payment but lower interest accrued over the life of the loan.

How will a personal loan affect your credit score?

There are several ways in which applying and obtaining a personal loan can affect your credit.

As with any other loan, mortgage, or credit card application, applying for a personal loan can cause your credit score to drop slightly. This is because lenders will have to make a difficult inquiry about your credit, and every time a difficult inquiry is pulled, it appears on your credit report and your score drops slightly. However, keep in mind that this drop is only temporary and that continuing to follow good credit habits can increase your score again over time.

However, it is worth being as strategic as possible when you decide to apply for a personal loan. Applying for a personal loan soon after applying for a new credit card may result in an even greater drop in your credit score as a difficult inquiry will be made for both applications.

On the plus side, getting a personal loan can actually help your credit score while creating a track record of making payments on time. This is especially true if you are approved by a lender who accepts applicants who have an insufficient credit profile. Payment history is the most important factor in calculating your credit score, making up 35% of it. Completing your monthly payments on time and in full can provide clues to the lender that you are very likely to pay off any money you borrow in the future. As a result of making consistent payments on time, your credit score is likely to increase.

A personal loan can also help improve your credit mix. Your credit mix refers to the different types of credit accounts you have, including credit cards, student loans, mortgages, etc., and makes up 10% of your credit score.

This doesn’t mean that you should do your best to take on different types of debt, but having a variety of accounts can show lenders that you have the ability to manage multiple types of credit. This can make you look like a creditworthy borrower (just make sure you don’t have too much debt).

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Personal loans—and the idea of ​​taking on more debt—can seem daunting, especially if you already have a low credit score or no credit history at all. But when used responsibly, it can help you cover large and necessary expenses and improve your credit score while you make payments on time. If you are applying for a personal loan with poor credit, you will only need to consider the above things so as not to be shocked during the process.

Editorial note: The opinions, analyses, reviews or recommendations in this article are those of the editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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