Do you find yourself struggling to get a loan approval because of your bad credit? If you are just starting to build your credit, or an unfortunate financial change caused your score to plummet, lenders will have second thoughts about giving you the needed financing. But that does not mean it’s impossible to get it.
What does it mean to get a loan with bad credit?
If your score falls in the lower range of the prime limit, you can still get a prime loan, but at a cost. That means getting a higher interest rate on top of the principal amount you owe. The interest you will get goes even higher when you’re considered to be in the subprime range. If you don’t want to go down the subprime path, here are five financing options you can use to still get the money you need:
HELOC or Home Equity Line of Credit
Your home’s equity can be your saving grace when you run out of financing options. If you have enough equity in your home, you can tap into that to use as a low-interest, tax-deductible line of credit. You have the freedom to use the proceeds of this loan as you see fit. It is important to remember, however, that you are putting your property at stake so you must be confident of your ability to pay back the debt.
Financing from Credit Unions
Credit unions mostly offer more competitive interest rates compared to your traditional banks. They are also member-focused, which means you get to vote on decisions regarding the direction of the cooperative. Check in your local area if there are credit unions you can join.
Peer to peer lending is gaining popularity since 2005. Using the power of online connectivity, it functions using an internet-based platform that lets lenders and borrowers engage in business. The borrowers post their loan proposal, containing the details of their loan needs including the amount, their credit score, and the rationale for financing. Lenders then screen these applications to look for applicants whose conditions meet their criteria. One salient advantage of peer to peer lending is that even though your credit still factors, peer to peer lenders can be more understanding and considerate of your current financial needs.
Financing from Friends and Family
If you cannot find a peer to lend you money, you can ask help from family, friends, or relatives as an alternative financing source. Even though you’re dealing with people close to you, it is still imperative to keep the transaction proper. Document your agreements, and make sure everything that should be legally recorded is put in place. You don’t want to tarnish a close family tie just because of a bad financial deal.
Getting a Co-Signer/Co-Borrower
If none of the above options are possible for you, you can instead enlist the help of a co-signer, one who is confident of your ability to repay your debts. Before you decide to sign any application with a co-signer, know that both of your credit scores can be affected in case you default on the loan. If you also decide to stop paying your monthly financing dues, your lenders will turn to your co-signer to pay the rest of the loan. Thus, both should be well-informed on the risk you are taking before filing any application.
Explore which option suits you best. But if a financing alternative is not possible, your last resort is to be patient in building good credit so you can qualify for financing the next time you apply.