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6 Options to Get a Loan with Bad Credit

While having bad credit can be a roadblock when applying for a loan from a traditional lender, the good news is that there are alternative options. Laura covers six ways to get a loan even if your credit is less than perfect.  

By
Laura Adams, MBA
7-minute read
Episode #448

The best way to shop for loans is to submit all your applications within a one- to two-week period. Credit bureau algorithms know that a few credit inquiries within a short timeframe mean that you’re shopping and will only be counted as a single inquiry.

See also: FICO vs. VantageScore Credit Score--What's the Big Difference?

Option #3: Try marketplace lenders

Marketplace or peer-to-peer lenders connect people who need money with investors who want to make loans, which creates a win-win transaction. 

Marketplace or peer-to-peer lenders connect people who need money with investors who want to make loans, which creates a win-win transaction. This option is exploding in popularity because borrowers pay less interest than they would to a traditional bank and investors earn above average returns.  

You create a profile and post a loan listing that investors can review and choose to fund. Many are willing to take a chance on borrowers with average or low credit scores.

Check out these popular marketplace lenders:

Option #4: Appeal to a loan co-signer

If you’re having trouble qualifying for a loan on your own, consider finding someone with good credit to be your co-signer. Maybe you have a family member or friend who trusts you enough to share responsibility for a debt.

When you co-sign a loan, the payment history gets reported on both of your credit reports, even if only one co-signer makes the payments. That means if you make payments on time, it benefits both of your credit reports and helps increase both of your credit scores.

However, making late payments damages both of your credit files. And if you default, the lender will hold both of you equally responsible for repaying the full amount of outstanding debt.

Option #5: Use a home equity line of credit

If you’re a homeowner and have enough equity in your property, you may qualify for a low-interest home equity line of credit (HELOC). It’s a second mortgage that you can access as needed using a paper check or debit card.

With a HELOC, you’re limited by the total amount of the credit line offered and only pay interest on the amount you take out. Plus, up to $100,000 of the loan or credit line is tax deductible.

Your credit score typically doesn’t play a role in your loan’s approval or the interest rate you pay for a HELOC because your home is the collateral. That’s great if your credit isn’t good. However, the big drawback to a loan that’s secured by your home is that if you don’t make payments, you could lose your home.

So before tapping your home’s equity always be sure that you have secure and steady income. You can apply for a HELOC with the lender that handles your first mortgage or shop around with other banks or credit unions.

See also: Best Tips to Improve Your Credit Score

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.