If you have bad credit and need a loan, don’t worry, you’re not alone. Many people struggle with their credit scores. According to Experian’s 2019 Consumer Credit Review, approximately 16% of Americans have poor credit. Despite being a common issue faced by many Americans, having bad credit does not have to prevent you from obtaining a loan. Let’s take a look at one option: installment loans for bad credit. But first, let’s define a few terms.
What is a bad credit score?
Scores in the FICO scoring model range from 300 to 850. These digits represent a borrower’s likelihood of repaying a loan. If your credit score falls between 300 and 579, it is considered poor, and lenders may consider you a risk.
The FICO credit scoring system ranks credit scores as follows: poor(300-579); fair (580-669); good (670-739); very good (740-799); and excellent (800-850).
In 2022, the average FICO credit score was 714 points, which is considered good. If you have poor or fair credit (less than 670), your credit score is significantly lower than average.
What is an installment loan?
An installment loan is a type of loan in which you receive a lump sum of money that you repay in equal monthly installments over a set period. If you have bad credit, it may be difficult — but not impossible — to qualify for this type of loan. Several lenders provide installment loans for bad credit, which means you could be eligible for a personal loan even if you have bad or even no credit at all.
The best installment loans for bad credit have a wide range of loan amounts, fewer credit score requirements, and relatively long repayment terms. Some also allow borrowers to apply with a co-signer or co-borrower, which may make approval easier. However, remember that even the best bad credit loans typically have higher interest rates than good credit loans.
How do you get installment loans for bad credit?
Installment loans can help you cover a large expense, consolidate high-interest debt or get through an emergency. Let’s unpack everything you need to know about getting an installment loan when your credit score is less than perfect.
1. Know your credit score
Knowing your credit score before applying for an installment loan is critical. This will help you understand what type of loan you might be eligible for and what interest rate you can get. Many online credit monitoring services, as well as your bank, offer free credit score checks.
If your credit score is less than 580, you may be classified as a subprime borrower. Subprime borrowers frequently face higher interest rates and stricter loan requirements. However, if you can provide proof of income and demonstrate your ability to repay the loan, you may still be able to get an installment loan for bad credit.
2. Research lenders
Once you’ve determined your credit score, it’s time to start looking for lenders. Look for lenders who specialize in installment loans for people with bad credit. These lenders are more likely than traditional lenders to approve your application and may offer better terms. Read reviews and compare interest rates and fees to find the best lender for your needs.
Numerous online lenders provide installment loans for people with bad credit. Although these lenders may provide quick approval and funding, they may also charge higher interest rates and fees. Traditional lenders, such as banks and credit unions, may also offer installment loans for bad credit, but their requirements may be more stringent, and approval times may be longer.
3. Gather your documentation
You must provide documentation proving your income and identity when applying for an installment loan. Pay stubs, bank statements, and a government-issued ID may be required. To expedite the process, ensure you have all the necessary documentation ready before applying.
You may be required to provide additional documentation, such as tax returns or profit and loss statements if you are self-employed or have irregular income. Check with the lender to see what documentation is needed.
4. Apply for the loan
Most lenders allow you to apply online, which is convenient and quick. Prepare to provide information about your income, employment, and the loan’s purpose. You may be required to authorize a credit check as well. Your application will be reviewed by the lender, who will decide whether or not to approve your loan.
If approved, you’ll receive a loan offer including the loan terms, such as the interest rate, monthly payment, and fees. Before accepting the loan:
- 1. Read the loan offer carefully and ensure you understand the terms.
- 2. Pay close attention to the interest rate because it will determine how much you will pay over the life of the loan.
- 3. If the interest rate appears too high, consider other loan options or negotiate a lower rate with the lender.
5. Repay the loan on time
Once you’ve accepted the loan, you must make all your payments on time. Late payments can hurt your credit score and incur additional fees and interest charges. Set up automatic payments or reminders to avoid missing payments.
Pay attention to the problem if you need help making your payments. Explain your situation to the lender as they may work with you to devise a payment plan or offer alternative solutions.
6. Build your credit
If you make your payments on time, taking out bad credit installment loans can help improve your credit score. Your payment history will be reported to the credit bureaus as you make payments, which can help improve your credit score over time.
Other than making on-time loan payments, there are other steps you can take to build your credit score, such as paying off your credit card debts, not applying for too much credit at once, and paying all of your bills on time
When traditional lenders refuse to approve your application, a bad credit installment loan can be a great way to get the financial assistance you need. Shopping around with various lenders is critical to finding a loan product with favorable terms that suit your financial situation.
Payment 1 understands that life can be unpredictable and unexpected financial challenges can arise. Our expert lending team is here to help you sort through your options. Contact us today to learn more about our client-friendly payment plans.