5 Ways to Get a Loan with Bad Credit

Don't think that because you don't have stellar credit, you don't have options.
Last updated Sept. 23, 2020 | By Laura Bostwick
5 Ways to Get a Loan with Bad Credit

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Whether you’re struggling to build credit for the first time or have had your credit knocked down a peg (or twenty) by financial problems, you may be surprised by the number of options available to you for a loan. Securing a loan — no matter what your credit score is — can be tough, and you may assume you're out of options if you have less-than-stellar credit, but it can be done!

Before you think all hope is lost, here are five ways to get a loan even if you have bad credit.

Use your home equity for a line of credit

After the housing bubble, many homeowners owed more on their homes than it was worth. However, if you have equity in your property, you might still qualify to get a low-interest, tax-deductible line of credit to spend any way you’d like. This option does come with a caveat though; by tapping your home equity, your property could be in jeopardy if you don’t repay the loan.

Not to worry though, if you have a reliable income, are disciplined about paying down the debt and know how to manage your money, this is definitely a great option to consider.

Apply to credit unions

Credit unions are sort of like banks, but instead of being owned by a big company, they’re owned by their members and are considered nonprofit organizations. Often, credit union members have something in common (like living in the same geographic area, working in the same industry, and so on) and credit unions serve members that have that commonality.

By securing a loan from a credit union, you’ll definitely get some of the lowest fees out there, not to mention often great customer service. Consider looking up a credit union near you and calling them directly to discuss your options.

Consider a peer-to-peer loan

Peer-to-peer (or P2P) lending was first introduced in 2005 as a streamlined way for people to borrow directly from an individual instead of an institution. Why? Well since it’s a direct loan process, you’ll pay low interest rates back to the lender and they’ll earn high interest rates back on their investment. What’s even more interesting is that you can list the amount you’re seeking, what you plan to do with it, and explain your situation.

So while your credit will still be a factor, investors may be more empathetic of your situation than a traditional bank. Interested in being matched up with a potential investor? Here are a few sites to check out:

Consider a loan from family or friends

If an online peer won’t lend to you, you might have better luck asking a friend or family member to grant you a loan. If you do go this route, it's highly recommended that you treat the loan as a legitimate business transaction that is legally binding, just as you would with a normal lender. That way, there's less of a chance of tarnishing the relationship.

Both parties should also write a letter of agreement that states the terms of the loan: the amount, interest rate, length of the loan, what happens if the loan cannot be repaid, and so on. Websites like LegalZoom have documents specifically for this type of loan.

Get a co-signer

If you can’t get a friend or family member to loan you money, then perhaps you could get them to co-sign on a loan with you. The way it works is someone you know (presumably a friend or family member) with good credit would sign-up for a loan with you so the institution or investor can feel rest assured they’ll get their money back from you.

Be aware though, that should you be unable to repay the debt, the creditor will look to the co-signer to make the payments for you, which could be potentially devastating to the co-signer who took a chance on you. Like borrowing from a friend or family member, don't do anything that would harm your relationship.

Bottom line on getting a loan with bad credit

Just because you're in the process of building or repairing your credit doesn't mean you don't have options if you're in need of extra money. It may take a co-signer or a little outside-the-box thinking, but don't consider it a loss until you've exhausted all your options.

If none of these options work for you, it’s probably a better idea to focus heavily on raising your credit score before trying to secure a loan. In addition to checking your credit report for free on annualcreditreport.com, you can check your credit score as often as you want with a site like Credit Karma without any impact on your credit score. If you absolutely, positively need the funds, consider signing up for a secured credit card to help build your credit at a quick pace and get a line of open credit now.

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  • Build your credit history every time you spend money
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Author Details

Laura Bostwick Laura writes about managing money, entrepreneurship, getting out of debt, and using credit cards responsibly.