If you have bad credit, an unsecured personal loan might be one of your only options for getting the money that you need. By applying for an unsecured personal loan, you are more likely to get your loan application approved, even if you have a bad credit score.
Have you ever had an unexpected expense arise that you don’t know how you can afford? Has something like a car accident, hospital bill, appliance replacement, or necessary home repair ever blindsided you? If so, you probably know that it is difficult to find money to take care of these expenses, especially if you have no money saved aside for “a rainy day” or an emergency loan is not a loan option. You are not alone, however. Many people do not have the spare income in their bank account to completely cover an unexpected expense when it arises.
Loans are a financial service that exist to allow customers to have access to money they otherwise would not have at the moment. If you have bad credit, how are you supposed to get a loan in your time of need if seemingly every legitimate lender will deny your loan application because of your bad credit? How do you find a loan in a situation like this?
Thankfully, there is a loan offer that is available just for this purpose. They are called unsecured personal loans. Unsecured personal loans are loans that do not require you to put up any collateral for your loan. In other words, if you fail to pay back your loan you will not lose whatever you put up for collateral, like your car or another one of your possessions.
Unfortunately, many of these loans are part of an industry that is riddled with predatory lenders. These lenders are known to be untrustworthy and for trying to put their borrowers into deeper levels of debt than they were in the first place.
Let’s take a closer look at what an unsecured loan is, how to qualify, and where you should get one and avoid harmful lenders.
Again, unsecured personal loans are loans, usually smaller loan amounts , that do not require you to put up any collateral to apply for the loan. On the other hand, secured loans are loans that do make you put up collateral. For example, if you got a secured auto loan, you would most likely be required to put the car that you are buying up for collateral. If you failed to pay your loan, your lender could confiscate your car to make up for the value that was lost. With an unsecured loan, this is not the case. If you default on the loan, your credit score will go down but you will not have a possession forfeited (unless you are sued and the court orders you to).
Generally, putting up collateral is a safer loan option the lender as they are at least guaranteed value if the borrower can’t pay back. Unsecured loans are far less safe investments for lenders. Because of this, unsecured personal loans are generally much smaller loans. Common unsecured personal loans are payday loans. As you may know already, the vast majority of customers that get unsecured personal loans like payday loans are those with bad credits scores, as payday loan lenders are one of the few institutions willing to lend to those with bad credit scores.
In general, credit score and default rate are correlated. Research shows that as credit scores get lower, the more people default on their loans. Those with lower credit scores default more than those with high scores. Because of this, lenders that provide a bad credit loan tend to have a great number of borrowers that do not pay their loan. To recoup these losses, they will charge an exorbitant interest rate on their customers. Basically, this means that unsecured personal loans will tend to have a higher interest rate than for a loan of the same size that is a secured loan. This will make your loans slightly more expensive, but if you have bad credit you may not have another choice in terms of loans.
If you have excellent credit or a good credit score, you are very likely going to have your loan approved for your unsecured personal loan or find other cheaper types of credit. To make sure you qualify, you will need to be over the age of 18 and you will need to prove your ID via something like a driver’s license. Likewise, a legitimate lender(s) will want to make sure you are making some sort of income so they can be sure you follow the repayment term to pay off the loan. This proof of income can range anywhere from your job to government benefits or investment dividends. If you have all of these things, you are likely to have unsecured personal loan approval if you have good credit.
On the other hand, if you have bad credit, there is no guarantee that you will get your unsecured personal loan approved, especially as your credit score gets lower. Each lender has their own standards and minimum requirements for prospective borrowers to meet if they want to get approved. For example, some lenders might require their borrowers to have at least a credit score of 500 to get their loan approved, while others might have a lower or higher credit score requirement. It really depends on the lender.
To increase the likelihood of qualifying for your unsecured personal loan, there are some things you can do before your loan application to boost your credits score. Here they are:
Getting an unsecured personal loan may or not hurt your credit score, but it will not hurt it enough to worry too much on your next credit report. The only reason your credit score may go down is when you are applying for the loan. There is something called a hard inquiry credit check. When you apply for a loan or a credit card, the lender will check your credit history and credit score. This is a hard inquiry. Unfortunately, every time there is a hard inquiry on your credit report, your credit score may drop anywhere from 5 to 10 points. That said, if you apply to 6 different unsecured personal loans before yours is finally approved, you won't see a huge hit on your credit score because further inquiries after the first will not affect your score, as long as it's within a set period of time. That said, multiple inquiries in a short period of time will notMake sure you keep this in the back of your mind when applying for a loan like this.
While hard inquiries can hurt your credit score, there are some online lender(s) whose loans boost your credit score when you pay them off, like Possible Finance. Possible also does not check your credit score or do a hard inquiry. Generally, many lenders in the unsecured personal loan industry do not boost your score when you pay back the loan. This occurs when the lenders do not report your information to the credit bureaus. While they may not report your payments, there is nothing barring you from calling your lender and asking if they can report your payments. Many lenders will agree, and your credit score could see a boost if you pay back the unsecured personal loan on time and in full.
Overall, the process of getting an unsecured personal loan may drop your score a few points. Still, if you get a loan with the right lender or ask your lender to report your payments, you could actually see your credit score rise due to paying your unsecured personal loan.
Like we mentioned earlier, the unsecured personal loan industry is generally known to be extremely untrustworthy and predatory towards their customers, who often get their loans out of desperation. Possible Finance was built to fight these injustices and provide a service for customers to build themselves up instead of falling further and further into debt. We want to be a lifeboat in an ocean full of hungry sharks.
At Possible, a product we are extremely excited to offer is called the credit builder loan. The credit builder loan is a smaller, unsecured personal loan available to customers with bad credit. Our loans can be up to $500 in size. Unlike our competitors, we do not require you to pay back your installment loan on the next payday. With our loans, you pay back with equal installments over a month. If you are struggling to pay back your loan, you can extend your payment deadline within our app for up to 29 days later. Unlike our competitors, we don’t want to see you fail. We aren’t here to make you fall further into debt; we are here to build you up.
With our credit builder loans, if you successfully pay back the loan, we will report your successful payments to Experian and TransUnion. As a result, your credit score will go up any time you pay back our loan. Most other similar unsecured personal loans of this size are payday loans that in no way build your credit score when you pay them back. Since our loans are offered to those with low scores, many of our customers see their credit score greatly go up with our loans and continue to do them!
Want an unsecured personal loan with Possible? Download our app today, and get started!