8 ways to get a loan with a bad credit history
It is not easy to take a loan with a bad credit history. If you want to buy a new car, buy your own home, or start a business, you can fight to get a loan, even with low rates.
Go Banking Rates prepared 8 tips on how to get the necessary amount from lenders, even if you are considered a high-risk borrower.
1. Register with a credit union
A great option, since credit unions are the property of their members. A credit union associated with your community or employer can ignore a bad credit history and give you a loan based on other factors, such as guarantors who can repay the loan for you.
"Credit unions are more likely to lend to people in their communities than banks or online lenders," said Joseph Holberg, founder and CEO of Holberg Financial, a Chicago-based company that helps millennials become financially informed.
2. Borrow from relatives or friends
If banks have declined your loan request, you can ask your friends or family members if they are ready to help you. However, if you cannot return the money you borrowed to them, you risk spoiling important relationships in your life.
“If you choose this method, here's my advice: write all the terms on paper, rather than just say that at 5%, as it can be interpreted in a surprisingly many ways,” said Joshua Wilson, partner and chief investment officer at planning firm WorthPointe Wealth Management. - You must document exactly how and when the loan will be paid off. Ideally, you should also have the terms of how you handle late payments. "
“It can be very slippery for both parties,” said Brandon Hayes, vice president of financial advisory firm Oxygen Financial. "Based on my experience, if you lend money to family members or good friends, you shouldn't expect to get it back."
3. Find a guarantor
If your friends are ready to help, but do not give the full amount at once, they can become your guarantors. If you have a qualified guarantor, then the borrower receives more favorable conditions.
However, if you do not pay your loan payments on time, you and the guarantor will suffer the consequences.
“It’s important to remember that if you don’t pay off the debt, the creditor will demand full payment from your surety,” Blair said. "Plus, your entire payment history will be recorded on both of your credit reports, and this can be devastating to your guarantor."
4. With the help of residential real estate
If you have your own residential property, you can use it to get a loan secured by real estate.
"A line of credit against real estate is likely to be cheaper than many other forms of credit because it relies on collateral and the interest you pay can count as tax," said Stephen Fox, founder of Next Gen, financial planner ...
5. Equitable lending
This type of lending appeared in the 2005 year and is a platform that allows you to take credit directly from people, not institutions.
You can leave credit lists on various websites, where you need to indicate how much you want to borrow and how you plan to use this money. The websites certify the creditor’s credentials for the person who wants to borrow and assess the borrower's risk to the lenders.
Investors are reviewing credit lists and choosing the ones they want to finance.
“This can be a good option for people with poor credit ratings,” Fox said.
6. Independent Lending
Independent lending is an emerging industry that provides an opportunity for borrowers with low credit ratings. These lenders usually work on the Internet and offer loans to borrowers with bad credit who want to make home repairs or consolidate credit card debt.
"Independent lenders have emerged to help people whose credit scores don't accurately reflect repayment options," said Kevin Gallegos, vice president of operations for Phoenix Financial Freedom.
“Personal loans can be bad for their financial stability if the borrower does not have the financial discipline to meet strict monthly payments and maturities,” Gallegos said. "Personal loans will only have long-term positive results if borrowers have a plan and do not aggravate their debts."
Hayes also warns borrowers with credit scores below average that the conditions they receive from personal lenders are imperfect.
7. Get a loan on bail
This type of loan allows you to take money on the security of an asset that you own: home, boat, car, or even shares. The lender has an asset as collateral.
It differs from other loans, as a rule, in lower interest rates, more favorable terms and access to more money. As an added bonus, timely repayment of your loan will raise your credit score.
8. Debt repayment
Your credit rating is not the only factor that affects the likelihood of a loan, the percentage of debt and the approval of the loan. Lenders use the debt-to-income ratio to determine what your debt represents as a percentage of total income. Before you apply for a loan, strive to pay off some of your debt in order to reduce your ratio.
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