When you apply for a personal loan, you must be able to prove to your potential lender that you can consistently complete your repayment obligations and manage your finances.
There are several things that a lender will typically consider when seeing if they will let you borrow money, and if so, the details of your contract. Lenders will consider the following:
- Your income
- Your savings habits
- Your expenses
- Your level of debt
- Your credit score
What is a Bad Credit Score?
Your credit score is the number that you are given based on your payment history. If you pay your bills on time and never or very rarely miss a payment, you will have a high credit score. However, if you have had several defaults or missed payment, you will likely incur a low credit score.
A credit score is important to lenders because it tells them how much of a risk it would be to them to give you a loan. Lenders want to reduce their risk of loaning money as much as possible. If they consider you a risk, your journey with personal loans may be different.
Can I get a Personal Loan with a Bad Credit Score?
While getting a personal loan with a low credit score will be more difficult, it is certainly not impossible.
In general, a lender will agree to give you a loan if you have a low credit score, but will generally charge higher interest rates. This higher interest rate will be charged due to the lender considering you a greater risk. You will also likely only be able to take out a secured loan. Secured loans mean that the lender has legal rights over a particular asset, such as a car. This gives the lender that little bit more security in loaning to you, if you may be a risk to them.
If you can accept the conditions of a loan with a low credit score, such as higher interest rates and a secured loan, getting finance can be a great way to improve your credit rating and therefore, open up the opportunity to better interest rates in the future.
Improve your Credit Score
If you would like to apply for a personal loan and have a better interest rate, you could spend 6 months to a year improving your credit score. You can do this by re-hashing your budget and expenses, making sure you are on top of your spending, savings, and consistently paying your rent, mortgage and other bills on time. This will help improve your credit rating so that when you apply for a personal loan, you will not be as much of a risk to the lender, and they may be able to offer you a lower interest rate.
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Don’t Forget to Compare
One of the best ways to find the lowest interest rate possible is to compare. Money Compare makes it easy to compare different loans and interest rates on the market so that you can make the most informed choice and get the cheapest rate possible. Money Compare makes it easy to get a quote within minutes, compare personal loan options, and Stay informed, save money, stress less, and smile more!
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