Small Loans for People With Bad Credit

By: Matthew G Young

If you have bad or no credit, you still have options when it comes to getting a personal loan. The individual applying for the loan will, however, most often be penalized for their bad credit. This usually occurs in the form of a higher interest rate. The lower your interest rate, the more difficult it will be to get a loan, and when you do find a loan, you will pay a higher interest rate than an individual who has good credit applying for the same loan. Your repayment time frame may also be altered if you have bad credit. Instead of a three year repayment plan, you might be given two years to repay the same amount. This will result in larger repayment figures for the borrower.

Your first step should be to check your credit report. It is quite possible that the reasoning for your poor credit score is simply an error on behalf of your creditor or the credit bureau. A 2004 study concluded that up to 79 percent of all credit reports had at least some sort of mistake included. In about five minutes, you can look over your entire report and see if there is any incorrect information. Letters to the three credit bureaus will alleviate this situation once they investigate the matter. If there are no errors on your report, don't panic. At the very least, you will be more aware of what your credit actually looks like, thus giving you a better idea of how to actually go about repairing your credit. More importantly, you will still have options when it comes to obtaining a personal loan.

Start with a bank or credit union that you use on a regular basis. Even though you have bad credit, having an existing relationship with a financial institution might get your foot in the door when it comes to obtaining a loan. To be sure, by no means is your bank obligated to give you a loan, but because you are an existing customer, the formal standards for being approved for a loan might be relaxed.

Many banks and lenders specialize in loans for individuals with bad credit. Remember though, unsecured personal loans will definitely have a higher interest rate than secured loans such as a home or car loan. These lenders might require a cosigner on the loan application in return, but this should not discourage you. As long as you are timely with your loan repayments, the cosigner will never be bothered by the lender.

For those that cannot secure a loan via traditional methods, one attractive option for individuals with bad credit is to obtain a credit card specially designed for those with bad to no credit. Many of these exist and can be found with a quick online search. Make sure that you look over the terms, conditions, and rates to find the card that best suits your needs. Some cards feature gimmicks designed to catch your attention such as six months of no interest or no annual fee. Make sure that you are thorough with your research because these cards will sometimes have higher rates than other cards without the gimmicks. Of course, if you plan on repaying the card's balance within the interest free timeframe, the gimmick can be extremely helpful and used for your benefit.

Payday loans are an additional alternative. These should be considered only under emergency situations. Be aware that the Federal Trade Commission has highlighted payday loans as having extremely high interest rates. Still, if you have no other options, this can be exactly what you need. Payday loans work by giving you a small amount of money that is intended to be repaid within one to two weeks, or, until your next payday. If the loan is not repaid within this time period, then a large amount of interest is added to the amount owed. Payday loans can quickly spiral out of control if you miss your payment date, so make sure that you enter a loan of this type only if you are sure you will be able to repay it.

Of course, your best option is to repay your debts and repair your credit prior to applying for a loan. If all else fails, this process will enable you to become better positioned for a loan in the future. As a final resort, your family or friends might be able to help you. As awkward and uncomfortable as this might be at first, your parents, siblings, or children might be just the solution that you need. Additionally, family and friends will rarely charge you interest, making this possibly the most attractive of all.