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Personal loans for bad credit

Credit history not in good shape? Don't fret just yet. Find out which lenders consider applicants with bad credit.

Bad credit is tough to shake. Negative listings can stay on your credit report for years and severely hinder your ability to access personal loans. However, if you’ve made attempts to put things right, there are personal loans for bad credit that you can consider. Find out what’s available in this guide.

How do I know if I have bad credit?

You can find out if you have bad credit by requesting a copy of your credit report. This is a summary of your credit history that lenders use to determine whether they are willing to offer you a loan. It also shows a credit score of between 1 and 1000. A good credit score is around 600-850, but this can vary depending on the credit reporting agency.

Although the definition of bad credit varies between lenders – bankruptcy, defaults and debt repayment plans are red flags to lenders and usually place you in the bad credit category.

Your credit report holds other relevant financial information, including overdue bill and loan repayments, multiple credit applications or exceeding credit card limits. Excessive credit applications in a short space of time can also put you in the bad credit category, if only for a short space of time.

What are your loan options with bad credit?

There are various personal loan options for people with a bad credit rating:

  • Secured personal loans. If you can provide collateral, such as a car, equity in your home or another high-value asset, a lender may be more willing to overlook a few negative marks on your credit report. A secured personal loan is less risky for the lender since they have an asset to take ownership with if you fail to make your repayments.
  • Guarantor personal loans. Do you have a partner, close friend or relative who is willing to guarantee the loan for you? If so, you may be able to qualify for a guarantor personal loan. Certain bad credit lenders offer tailored products that you may want to consider.
  • Short term loans. Are you only looking to borrow up to $2,000? Then you can consider a short-term loan from a payday lender. These lenders focus less on your credit history and more on your current financial position and ability to repay the loan.

How can I receive approval for a personal loan with bad credit?

There is no trick to receiving approval. However, there are a few things you can do to give yourself the best chance:

  • Don’t make too many credit applications at once. Too many applications is a red flag to lenders and can hinder your chances for future credit approval. If you have done this, try and wait before you make future applications.
  • Check your credit score to see where you stand. By checking your credit score, you can gain an idea of your current position and where you fall in the credit ratings. You can obtain a copy of your credit report from illion, Credit Simple, Centrix, or Equifax. Make sure to carefully check your report to see if there are any unpaid debts that you could have forgotten about or if there are any listings which you believe are incorrect.
  • Check the eligibility criteria. Checking the application criteria will help you understand if a lender is willing to consider personal loans for bad credit. Applying to a lender that is willing to listen and find a solution based on your circumstances will give you a higher chance of approval than a lender who does not accept bad credit applicants.
  • Use a personal loan calculator. Using a loan calculator will ensure you don’t apply for a loan you can’t afford. You can find out how much your repayments will be for various loan amounts and loan terms. When reviewing your application, lenders will only approve your loan if you can afford the repayments.
  • Talk to the lender before applying. There are varying levels of how bad your credit report looks to lenders, so talking to the lender before applying will help you understand if there is the possibility of providing you with a loan. If you’ve been able to obtain your credit report, you can share this with them along with your income, assets and liabilities. If the lender can see that the negative listings on your report are from a few years ago and you are currently in good financial standing, they may suggest that your chances are favourable – even if it is for a loan with a higher interest rate. Remember that loan applications are listed on your credit report, so it’s worth having a conversation before making an official application.
  • Consider using security or a guarantor. If you have bad credit, your application might not be strong enough to receive approval on its own. If you have a property or vehicle that you can use as collateral for the loan, this puts less risk on the lender. You can also consider asking a family member to act as a guarantor. Since their credit history is also taken into consideration because they are responsible for the loan if you default, your chance of approval may improve.

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