So you have bad credit? You’re doing whatever you can and taking steps to improve your credit score, but in the meanwhile you need to take out a loan. Your score might mean you keep getting denied by lending institutions. Luckily, all is not lost! It is still possible to borrow the money you need; however, you might just need to get a little more creative in finding borrowing alternatives. Here are a few options you might consider.
- Apply to a credit union
Credit unions are similar to banks, but they are usually smaller and they are owned by their members. Credit union members usually have something in common, for example, living or working in the same area. Credit unions are non-profit organizations. Unlike traditional banks, they pass along earnings to members via lower fees and higher customer service. At a local credit union, they will generally look at your overall situation when considering whether to loan you the money. To them you are more than just a credit score. As with bank loans, it’s important you shop around and call several institutions to compare loans and make sure you’re getting the lowest interest rate possible.
- Get a peer to peer loan
Peer to peer (P2P) lending networks have grown immensely over the past decade. Peer to peer loans are a great way to avoid the traditional loaning process involved when borrowing from a bank. The platform allows people to borrow directly from other individuals, instead of a bank. Borrowers post a loan listing including the amount of money they want and why they want it. Then peer investors can make bids for the loan with interest rates they feel are fair when considering the risk in lending to a low credit borrower. Your application gets screened by the lenders, so your credit score will be a part of your loan listing. Unlike traditional banks, individual investors may be more understanding of your situation and more likely to give you a loan.
- Ask friends and family
After being denied by banks, many people with low credit scores will turn to their family and friends to borrow money. Family loans are a common occurrence. Last year seven percent of homebuyers and 14 percent of business owners borrowed money from family and friends to help pay for their expenses.
Loans from family and friends shouldn’t be taken lightly. Make sure you treat it like a serious business transaction that is legally and clearly documented and signed. In order to avoid problems later on, it is important you have a written agreement that includes payment terms, the interest rate, collateral put up for the loan and what will happen if you fail to pay it back.
When borrowing from or lending to family members it’s important that both sides take the agreement seriously and realize the risks they are taking. Unlike banks, you will be seeing this lender on a regular basis. Sharing the dinner table with someone you owe money to can be difficult, so make sure you are both comfortable with the situation before you dive in.
- Find a co-signer
It’s not always easy to find a friend or family member who is willing or able to lend us money. Another option is finding someone to co-sign for a loan instead. If you find a friend with good credit who trusts you to pay back the loan on time, they can help you qualify for the loan by signing it with you. This way when you apply for a loan the bank will look at both your credit scores. However, this also means that your co-signer will be responsible if you fail to pay back the loan. At the same time, if you make late payments or default on the loan, this will also have serious consequences for your co-signer’s credit. Make sure you both understand the risks before you sign off on this type of loan.
- Use a line of credit or home equity loan
If you own property, this can be a simple way to borrow more money at lower interest rates than some of the options listed above. A home equity loan is a type of loan where the borrower uses the equity, or value, or their home as collateral. The loan amount is determined by the value of the property. There is a significant risk associated with home equity loans, in that your failure to pay back your debt can result in losing your home. If you are responsible and consistent about paying back the loan, this is a good option for borrowing.
Getting a personal loan is certainly not out of the question if you have bad credit, some loans are specifically designated for people with poor credit scores, so seek those loans out or find them here on our site.
Hopefully one of these lending options will meet your needs. If not, the best thing you can continue to do is boost your credit score. Remember bad credit is not a life sentence, it’s something that can and does continually change.
You are more than your credit score. On Upstart your education and experience help you get the rate you deserve.
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