Securing a Loan Despite having Bad Credit

Even after a lifetime of conscientiously paying all of your bills in full and on time, you may find yourself in the unpleasant position of facing a bad credit score. This can happen due to a variety of situations that may include an unexpected job loss or big medical bills that insurance won't cover. A great many people lost their excellent credit score thanks to their variable-rate mortgage. When the interest rates skyrocketed on those loans a few years back, it forced those mortgage payments way up and left thousands of people to lose their homes to foreclosure.

Whatever the reason that you may have found yourself with bad credit, you'll find that those creditors who were once so friendly may turn their backs on you if you try to obtain a loan today. Fortunately, there are a few things that you can do to secure a loan even when your credit score has seen much better days.

Possible Ways to Obtain a Loan Even With Bad Credit

If you have bad credit, then chances are good that you don't have access to a credit card, and that can spell disaster when an emergency occurs. There are many reasons that you might need a loan. You may find yourself unable to get to work or transport your children to school or doctor's appointments if you can't afford to have your car repaired when it breaks down. Major plumbing or electrical problems in your home, the loss of a major appliance or even an extra big utility bill could have you needing some extra help in a hurry. Don't assume that a loan is out of the question because of your bad credit score before you try these few options.

1. Visit Your Local Bank

If you have a checking account at a bank in your city, then you may do well to make a personal visit to your bank's loan officer. It's possible that your primary bank may be able to look past your bad credit score if you have your paycheck directly deposited to your account each week. Your bank can also review your average daily balance, and it can really work in your favor if you don't have any overdrafts or other problems associated with insufficient funds in your account. Even if you don't bank locally, you should contact the loan officer of the bank where you keep your money, and it's best to make personal contact at least by phone. Avoid sending an email request if at all possible.

2. Check Out Loans From Credit Unions

While a credit union works in much the same way as a bank, it differs in the fact that it is owned by its members who all usually live in the same area or work in the same type of business. As a nonprofit organization, a credit union may be more likely to consider giving you a loan despite your bad credit. Look for credit unions in your own city or as nearby as possible, and it's best if you take the time to talk to the credit union's loan officer in person.

3. Consider a Home Equity Line of Credit

If you own your home, then this might be the easiest way for you to get the loan that you need. It's not necessary that your home be paid off to be eligible for this loan, but you must keep in mind that it can lead to the foreclosure of your home if it's not paid back properly. On the bright side, this can be an inexpensive loan option even if you have a bad credit score.

4. Seek a Co-Signer

If you're a trustworthy person with a good job, then it's likely that you have people in your life that may be willing to offer help by means of being a co-signer for your loan. A co-signer with good credit may help you become eligible for more loan options that offer a much better interest rate. You should both realize that the loan information will appear on both of your credit reports, and your co-signer will be legally responsible for the loan if you don't make your payments.

5. Look to Family and Friends

In some cases, a family member or a close friend may be able to offer you a loan when you have no luck elsewhere. If you decide to go this route, it's important that you have a legal promissory note written up that includes all of the pertinent loan information. This may include the agreed-upon interest rate, payment terms and any actions that will be taken if the loan is not repaid. There's no better way to ruin a relationship than failing to pay back this type of loan, so be sure you can handle the repayment terms before you take the loan.

6. Learn About Peer-to-Peer Lending

Otherwise known as P2PL, this is a way to apply for a loan from any of several unrelated individuals rather than from a banking institution. Those who are available to lend money are there to make money from your interest payments, and it's possible that an individual investor may be far more sympathetic to your bad credit than a bank. The Lending Club and Prosper are two popular online companies that allow you to post your loan needs for investors to consider. Your credit score is still a factor with this type of loan, and you can expect your interest rate to reflect your credit score.

Start Working on That Loan Today

While you may expect to pay a higher interest rate than someone with a better credit score, it's still possible to get a loan using the above tips. Before you get started, you should also take a careful look at your credit report to ensure that there aren't any errors that could be making your credit score look worse than it actually is.