Can you get approved for a personal loan with a bad credit score?
How do you know that an online company is real?
Poor credit borrowers face a confusing array of personal loan options. The legitimate-looking online lenders often decline most requests. On the other hand, those promising an approval could be crooks.
Follow this four-part outline to improve qualifications while avoiding scams.
- Using cosigners to act as guarantor
- Impact of job security and earnings
- Types of collateral to secure payment
- Laws in your state that affect approvals
Personal Loans Bad Credit and Cosigners
Cosigners are an important personal loan topic for people with bad credit scores. A cosigner acts as the guarantor or fallback person that takes over in the event the primary borrower cannot make payments on time.
Request a personal loan here. Volume is the best strategy for people with marginal qualifications – with and without a cosigner. Complete a single online form, and have a network of direct lenders review your credentials.
Chances of obtaining a personal loan for someone with poor credit rating improve with a good cosigner. Online lenders are more likely to approve a request when a second more qualified person adds his her signature on the contract.
A good cosigner can improve eligibility with a better rating, and/or work history and income.
- Good cosigners have a high credit score to balance out the poor rating of the primary borrower. The bank will feel more comfortable approving a request when a reliable secondary person acts as guarantor.
- A good cosigner will also have a solid work history and a reliable high income. Banks recognize that future earnings make it possible to repay obligations according to terms. A second income backing up the contract could make the difference between an approval and a declination.
Young adults with no credit history often need a cosigner to kick things into gear.
The chances of someone with bad credit ratings getting a personal loan are much lower without a cosigner. Without a cosigner, the primary borrower must qualify based on his or her own credentials.
Unfortunately, without a cosigner, solo credentials are often not very good. Therefore, people with very low credit scores must shine in some other area.
Subprime borrowers can get personal loans without a cosigner if they have a good job, a high income, or use collateral to secure the contract.
Personal Loan Bad Credit Jobs and Income
Having a good job and/or a high income is another avenue of hope for people with poor credit history to get a personal loan. Expected future earnings are a second important predictor of future payment performance. Legitimate online companies will always ask about work history and want documentation of income.
Start a personal loan request here. As before, a large network of direct lenders improves chances for people who are unemployed or have low income. On the other hand, input a solid work history and strong earnings to compensate for a low rating.
Having a good job is an important qualifier for a personal loan approval. Borrowers with bad credit history can compensate by demonstrating that their future income stream is reliable. Lenders love certainty.
A good job with an established well-known employer projects certainty. Banks prefer lending to people who they expect to remain employed during the entire term of a new loan. A steady income helps people make payments on time and lowers the risk of default.
- Government employees have great job security
- Tenured school teachers also have strong job security
- Self-employed individuals must show two years of income documentation
A person with no job and a poor credit rating is not an ideal candidate for a personal loan. Banks are unlikely to approve any unemployed individual seeking to borrow money – unless there is an alternative ongoing form of support.
Most people without a job do not have the capacity to handle an additional monthly payment. Unemployment benefits typically end (6 months) before the repayment term of most new contracts. However, other sources of support could lead to an approval.
- Social Security checks
- Social Security disability payments
- Single mothers can use child support and alimony
Having a high income can help with a personal loan approval if you have a bad credit rating history. Most banks will also consider the borrower’s Debt-To-Income (DTI) ratio when making a lending decision.
Banks calculate the DTI by dividing the individual’s monthly debt service payments by the monthly income. However, having a high income does not guarantee a good (low) DTI.
Keep the DTI low by minimizing the monthly debt service payments. You can achieve this in one of two ways.
- Borrow a smaller principal amount
- Extend the repayment term
An individual with a low income and a poor credit history is not a good candidate for a personal loan. Banks will see two negative elements in its evaluation, with nothing positive as a counterbalance.
- A high Debt-To-Income ratio often results from a low earnings level. Basic living expenses consume a large percentage of monthly revenues, leaving little for debt service.
- Keep monthly payments low by requesting extremely small amounts.
Personal Loan Bad Credit and Collateral
Collateral is often an important tiebreaker when it comes to obtaining a personal loan online. Borrowers with bad credit scores need extra points in order to win an approval or pay lower interest rates.
Start a personal loan request here. Once again, the volume of eyeballs is the ideal strategy. Without collateral, the odds of approval and/or the lowest interest rates are not great. Therefore, get your qualifications in front of a network of direct lenders with a single form submission.
Having collateral is the best way to get a personal loan approval if you have a poor credit rating. Collateral acts as security, which the lender can repossess in the event of default. The bank can sell the seized asset to offset its losses. This is a legitimate business practice.
Borrowers with weak credentials can improve their qualifications by pledging collateral to secure the loan. Below are the most common examples.
- Vehicle titles
- 410K money
- Real estate
Unsecured personal loans do not require collateral. However, bad credit borrowers will find it far more difficult to obtain an online approval let alone a low-interest rate.
Unsecured loans rely on the borrower’s promise (signature) to repay the obligation on time and according to terms. Unfortunately, this assurance carries little weight when the individual has a documented history of doing the opposite.
Legitimate lenders will pull a hard copy of your consumer report. A history of late payments is a red flag and a strong indicator of future delinquency on any new loan.
Personal loans that are not payday loans are a related form of unsecured financing for people with bad credit. With a payday loan, the borrower secures a short-term cash advance using a post-dated check as collateral. The lender charges a fee and often approves the transaction without pulling a copy of a consumer report.
With a payday loan, the borrower secures a short-term cash advance using a post-dated check. The lender charges a fee and often approves the transaction without pulling a copy of a consumer report. The applicant would have to provide documentation showing regular deposits into the checking account. The amount is due in full usually within weeks.
A personal loan that is not a payday loan would have different characteristics. The lender would pull a copy of the person’s consumer report. There is no collateral to secure payment. The borrower would repay the lender in monthly installments over a much longer period. Legitimate lenders are less likely to approve such an arrangement.
Unsecured personal loans for poor credit borrowers without a bank account are rarely legitimate. Cash loans with no bank account needed is a sign of a predatory payday lender who might charge high fees, extra insurance, and unaffordable interest rates.
Without a bank checking account, the online lender has one less point of verification when making an approval decision and the individual has difficulty repaying the obligation.
- The presence of a bank account verifies that an applicant is a real person and not an identity thief. The bank requires valid government identification when opening an account.
- The borrower needs a checking account in order to send monthly payments. Sending cash through the mail is extremely risky.
- Never send pictures of gift cards to forward money without a bank account. Gift cards are the favorite tool of fraudsters.
For example, the website ranking at the top of search engines at the time of publication for “personal loans without a bank account” seems unreliable. Ironically, the application form requires bank name, routing number, and account number information. It makes you wonder why they even bother.
Personal Loans Bad Credit and State Laws
Many consumers with bad credit scores often find that state laws can affect their odds of a personal loan approval. The intention of these state-based regulations is to protect consumers from “predatory lenders.”
However, these good intentions also limit choices for borrowers with weak credentials. Three different sets of laws may restrict options. What follows is not legal advice.
- Usury laws place limits on the interest rate a company can charge on loans issued to residents in each state. Caps on interest rates make it unprofitable for banks to lend to risky people.
- Federal regulations often preempt the state-based restrictions – but not always.
- Online companies ask applicants to abide by laws in other states when signing the contract – when permitted.
- Payday lending rules can also limit consumer choice. Many states outlaw this form of borrowing entirely, while others place specific restrictions.
- Vehicle title loans are illegal in 34 states. Of the 16 states that permit this form of sub-prime lending, 4 place restrictions on the amount.
Personal loans for bad credit borrowers in New York State and NYC are the most difficult to find. Three lending rules make it difficult or illegal for companies to make money by approving people with very weak credentials.
- New York State laws define interest rates exceeding 16% as civil usury, and rates topping 25% as criminal usury.
- Payday loans are illegal in New York State. It is a violation of state law to make payday loans in-person, by telephone, or over the Internet. It is also illegal for a debt collector to collect, or attempt to collect, on a payday loan.
- Auto title loans are illegal in New York for any principal amount.
Many lenders do not take any requests from New York residents. The few that do are willing to quote only the 16% interest rate. It appears that the state laws must make it more difficult for online companies to skirt these regulations.
This precludes most debtors with weak credentials from obtaining an approval.
Personal loans for bad credit borrowers in New Jersey are also very difficult to find. The laws in the Garden State also serve to limit choice for people with weak credentials. However, each of the rules offers a possible loophole for residents on the bubble.
- New Jersey usury laws cap the interest rate charges at 30% for individuals. Low credit rating people with strong earnings and work history might qualify at this maximum rate.
- Payday loans are illegal in New Jersey. Licensees cannot cash or advance money on a post-dated check. However, this rule does not appear to apply to online lenders operating in other jurisdictions.
- Auto title loans are also illegal in New Jersey. However, residents with poor qualifications often drive south on the NJ Turnpike. They cross the bridge and obtain financing across state borders.