When you have bad credit, it can be a serious challenging to find a loan when you need one. Often, traditional lenders won’t approve your request, and some subprime options are incredibly expensive. So, what is a person to do when they really need a loan? By considering the three options below and choosing an option that fits your circumstances.
Choose a Secured Loan
One method for securing the funds you need is to choose a secured or collateralized loan. Secure loans require you to pledge the value of an asset to support the funds being requested. For example, an automobile loan is always a secured loan, as the value of the car being purchased is considered when approving the funds.
However, you can choose to pledge assets you already own to secure funding as well. This means, if you own your car outright, you can pledge its value to get the cash you need to manage other business.
Vehicles are not the only items you can pledge. Other commonly used assets include real estate, such as your home or land, as well as certain valuables like jewelry. Each lender may have differing criteria regarding what can be used as collateral, so it is important to discuss your assets before officially applying for the loan.
Explore Peer-to-Peer Loans
Peer-to-Peer (P2P) loans involve obtaining the funds you need from regular people who are interested in supporting your loan. The individuals who choose to fund your loan are essentially making an investment, as they are rewarded for lending the funds by receiving portions of the interest you pay. In turn, you get access to funds that you might not be able to secure through traditional means.
Since the money is being supplied is not provided by a bank, it is possible to get more favorable interest rates than from other lenders. However, just like a regular lender, the interest rate you are offered will depend on your exact circumstances, and you may be required to provide collateral.
Non-profit or Specialty Lenders
There are options available from non-profits and specialty providers based on need. Some of these lenders may have strict criteria on what the funds may be used for – this is generally the case with non-profit lenders. Below are examples:
– StepUp: This is a non-profit lender in partnership with the NAB and provides loans for essential household needs. Loan will be provided for consolidation or entertainment purposes.
– Short term Lenders: Many of these lenders were traditionally referred to as payday lenders but have changed their product offerings in line with legislative changes. These funds have no restrictions on use.
– Advanced Payments: If you are receiving Centrelink repayments, this may be an option for you. Its essentially an advance on future benefit payments.
Discuss Options with Friends and Family
Sometimes, getting a loan from a friend or family member is an ideal option if you can’t secure financing from a bad credit loan provider or a P2P lending service. If you do decide to explore this option, it is wise to create formal documentation supporting how the loan will be repaid, including if any interest will be charged. This helps protect you and the friend or family member who offers the funds.
An alternative method involves having a friend or family member cosign on the loan. If they have good credit, this can help you obtain approval based on their level of responsibility when it comes to managing their finances. However, it is important to note that if you fail to meet the repayment requirements, they will be pursued for the payment. Additionally, it will hurt your credit as well as theirs, which can create tension or may even ruin the relationship. Make sure if you do have another person cosign that you only apply for a loan that you can reasonably afford to repay.
Other Options May be Available
Depending on your exact borrowing needs, other options for people with poor credit may be available. Take the time to do some research, and don’t be afraid to contact potential lenders directly. Sometimes, the only way you can find out if an option may work for you is to ask. Worst case, they will say no, and you are in the same situation as you were before making the inquiry.