When you have bad credit, getting a loan on your own can be a challenge. Start with your own financial institution and work toward improving your credit score to make you a more attractive loan candidate in the future.
Talk to Your Bank
If you've been doing your personal banking at one financial institution for some time and have a good relationship, approach it first about your loan needs. Even if you have less-than-stellar credit, a bank that knows you and your financial history may be more willing to make a loan than a faceless financial entity you've never done business with. Be prepared to face stipulations, such as agreeing to have loan payments taken directly from your checking or savings account. This will help assure your bank the loan will be repaid in a timely fashion.
Get a Referral
Even if you don't have someone willing to cosign a loan on your behalf, you might be able to ask a trusted friend or family member for a personal recommendation at his bank. While a recommendation doesn't carry the same significance as an official cosigner, it can help open a door that might otherwise remain closed. Similarly, even loan officers that deny your request may be able to offer recommendations to other lending institutions with less strict credit score requirements.
Make a Big Down Payment
Lenders may be more willing to make a loan to you with poor credit and no cosigner if you're able to make a significant down payment on whatever it is you're looking to finance. Save up enough money to make a 20, 30 or even 40 percent down payment as a way to demonstrate your financial stability and to reassure the potential lender that you're a low risk for default.
Be Wary of High Interest Lenders
Some financial institutions, payday lenders and credit card companies will make loans to people with poor credit and charge excessively high interest rates. This option should be used only in emergency situations. If you take a high interest loan, make every payment on time, pay down the balance as quickly as possible, and renegotiate the terms or transfer the loan balance once your credit situation improves.
Repair Your Credit
Even if your credit score is low and your credit report has blemishes, taking steps to improve your financial situation can demonstrate to lenders that you're taking action to rebuild your financial picture. Pay off low balances on outstanding loans, come current on past due accounts, settle debt where necessary and take steps to remove inaccurate entries on your credit report. Note these actions on your loan application to show you're being proactive.
- Freddie Mac: The Importance of Good Credit
- New York State Department of Financial Services: Understanding Your Credit Report and Your Credit Score
- Loan.com: How to Identify Legitimate Emergency Cash Loan Lenders
- FTC: Coping With Debt
- Lendingtree: Minimum Requirements to Qualify for a Mortgage
- FTC: Free Credit Report