Whether you need capital for your small business or personal emergency funds and you have bad credit, all is not lost. There are private lenders who will offer you a loan even if you have bad credit. When it comes to underwriting criteria for personal loans, each lender has its own set of standards. You’ll be hard-pressed to find a lender that doesn’t examine your credit score as part of the qualification process. According to Marcus, an online lender that’s part of Goldman Sachs, it can be difficult to qualify for a personal loan if your FICO score is below 660.
Some lenders have stringent borrowing criteria, and it’s especially hard to get approved for personal loans from traditional banks if your credit isn’t in tip-top shape. Fortunately, some online-only lenders are more flexible and willing to offer personal loans for bad credit customers.
Your credit report isn’t the only factor that’s considered when you apply for a loan, which can either help or hurt you. For example, lenders may want to review information about your income and employment, plus your debts and your assets to get a better sense of your finances.
An increasing number of personal loan lenders now also use alternative data in the approval process, according to credit bureau Experian. This means they look at more factors beyond your credit report, such as utility payments or bank account information, which can help borrowers with bad credit or a thin credit file.
Many online lenders that are more open to approving loans for bad credit will charge origination fees that add to the cost of the loan. These fees are charged as a percentage of the total loan amount, which is factored into the annual percentage rate. Some lenders take this origination fee from your loan amount when you receive it. The worse your credit, the higher the fee is, since you’re deemed riskier.
Origination fees or not, it’s important to understand that your credit score plays a huge role in determining your loan’s interest rate. Those with excellent credit get the lowest rates, while those with worse credit scores get higher rates. The amount you’re borrowing and the term of the loan also impact your rate.
Keep in mind that the higher your interest rate, the more money you’ll pay in interest fees over the life of the loan. For example, on the low end, traditional bank HSBC offers personal loans with interest rates as low as 5.99% and with no origination fee.
Online lender Lending Club offers loans to those with lower credit scores, but interest rates are higher and borrowers also pay origination fees of 2%-6%, making the total APR anywhere from 10.68% to 35.89%. Someone paying upward of 30% in interest will have far higher lifetime costs than a borrower paying 6%, even for the same loan amount.
In conclusion, you can actually get a loan even if you have bad credit as long as you have assets, a good income, a record of stability, and can show you have paid on time in many situations. But be prepared to pay an origination fee and a much higher interest rate. That's just the price of doing business with bad credit. However, MoneyThumb's PDF financial file converters can help you get all your finances in order to make applying for a bad credit loan from a private lender much easier and you will impress your prospective private lender with the organization of your financial details.