There comes a time in our life when we need extra cash. It could be for many reasons: an unexpected bill, a big purchase, or maybe we want to have some extra money saved up in case of an emergency.
There are a few different ways to get that extra cash, and one of them is taking out a loan. However, some of us might not qualify for a loan from a bank or other traditional lenders, maybe due to bad credit.
Fortunately, there are bad credit loans available; and if you decide to apply for one, below are some tips on getting approved.
Take A Closer Look At Your Credit Report
Not all lenders will check your credit report when applying for a bad credit loan. For example, CreditNinja.com offers bad credit loans without a credit check. But even if your lender doesn't check your credit, it's still wise to review and check your credit report beforehand.
You can get a copy (once a year) from each of the three major credit bureaus for free at AnnualCreditReport.com. Reviewing your credit report will give you an idea of where your credit stands and any red flags that you need to address.
If you find any errors, make sure to dispute them with the credit bureau. By correcting those errors on your credit report, you can improve your credit score and make it easier to qualify for the loan.
Pre-qualify
Loan pre-qualification is the process of determining what repayment terms, loan amount, and the interest rate you can get. It's beneficial for bad credit borrowers because it gives them an idea of what they can afford.
There are a few ways to get pre-qualified for a loan, and the easiest way is online. You can fill out the form on their website and receive a pre-qualification letter within minutes.
Or you can go to their office or call the lender on the phone. If you go this route, make sure to have all your paperwork in order before you go. The lender will likely ask for things like your W-two forms from the last two years, bank statements, and proof of income.
Remember that pre-qualification is just an estimate of what you can get before applying. The final decision will come down to the underwriter, who will review your application.
Provide Collateral
Another way to boost your chances of getting approved for a bad credit loan is to provide collateral. It could be a car, your home, or any other valuable assets that the lender can take if you fail to make payments.
Your collateral will assure the lender that they will get their money back even if you can't make your payments. So, before you apply for a bad credit loan, be sure to assess your financial situation and see what type of collateral you could offer. It may be the difference between getting approved and being denied.
Apply With A Co-signer
You can also apply with a co-signer to ensure your bad credit loan approval. A co-signer is someone who agrees to be responsible for your loan payments if you can't make them. It can be a family member, friend, or trusted business associate.
Having a co-signer with good credit can increase your chances of getting approved for a bad credit loan. Be sure to choose someone you trust and willing to help you out financially if needed.
Improve Your DTI
If your credit score is low, you can work your way in improving your debt-to-income (DTI) ratio. This loan eligibility factor is the percentage of your monthly income towards debt payments. A higher DTI means you're more at risk for defaulting on your debts and can make it harder to get approved for a mortgage or car loan.
On the other hand, a lower DTI means you can afford more debt each month. It could work in your favor, as the lender may be willing to give you a higher loan amount since you're less likely to default on it.
There are a few things you can do to improve your DTI:
-
Pay down your high-interest debts as quickly as possible.
-
Consider consolidating your debts into one loan with a lower interest rate.
-
Make sure you have a good mix of different types of debt, such as installment loans and revolving lines of credit.
-
Increase your income. You can do this by working overtime or taking on a side hustle.
Conclusion
Many lending options are available for consumers with low or poor credit scores. It's a good idea to explore your financing options and find a lender willing to work with your situation. Also, make sure you understand the terms and conditions of any loan you're considering.
