Knowing what to expect when applying for a personal loan with bad credit makes the process much smoother. Luckily, the process is similar to getting a personal loan with excellent credit. Here are five steps to follow.
1. Check your credit score and reports
Maybe you know there are negative marks on your credit, but you haven’t requested a report recently. Take a few minutes to check your credit score and go through your credit report with a fine-tooth comb.Â
See if there are any errors and any accounts or hard inquiries that should have fallen off. You can write the credit bureaus with any requested changes or file a dispute online at Experian, Equifax, or TransUnion’s website.
Are there any small debt accounts you can pay off or catch up on before applying for a loan? Make sure you’re up-to-date on your credit history so lenders don’t blindside you when you try to get a personal loan.
2. Review your financial situation
Personal loans are convenient and help you get fast cash when you need it. Before you try to get a loan, it’s helpful to assess your financial situation. Getting a loan that’s too expensive to repay on time could negatively impact your credit score. Also, if you’re planning on using collateral for a secured personal loan, you don’t want to give up a valuable asset like a car.
Consider how many other debts you have, your income, and how much you can realistically afford to pay each month. You might lower the amount you decide to borrow and cut expenses in other areas of your budget to make things work.Â
Realize that getting the money you need is only half the battle. To truly win, you need to ensure you can repay the loan.Â
3. Start shopping around and get prequalified
Avoid applying for multiple personal loans at once, since this could result in multiple hard inquiries. Get prequalified with an online lender that caters to people with bad credit to save time and tension.Â
Call local credit unions to see if they have any personal loan options with lenient requirements. Look at fees, borrowing amounts, and term lengths. Make sure the loan details meet your needs. You can ask:
- Does the lender have any pre-payment penalties if you decide to pay your loan back early?
- What is the minimum credit score requirement, and are there income requirements?
- Can you use a co-signer, or is there an option for a secured personal loan?
- How much would your monthly payment be, and is it affordable?
4. Gather financial documents and apply
Once you’ve settled on a solid personal loan option, submit a formal application and gather your financial documents. Lenders will want to see proof of residency, proof of income, a driver’s license, and maybe a bank statement.Â
Try to promptly respond to requests for additional documentation to speed up the loan process.Â
5. Review terms before accepting a loan offer
If you get approved for a personal loan, take a moment to review the loan terms and read through the agreement. If something doesn’t make sense, ask the lender for clarity. Doing this ensures you fully understand and accept the loan terms.Â
Once you agree, the lender will fund your loan, and you’ll receive the money you borrowed in one lump sum within a few business days.
