A bad credit score is a brick wall between you and your loan request. Many people fail to make their loan payments on time due to budget constraints. Defaulting on payments leads to a poor credit score, which ultimately affects their capability of asking for a new loan. Whether you want a loan for a medical emergency or to finance a car, you need to keep your credit score up. However, there are financial institutions that offer loans for people with bad credit. In this blog post, we will explain how to get a loan with bad credit. So, keep reading to learn more.
What Is Considered a Bad Credit Score in Australia?
Credit score ranges from 350 to 800. Though there is no fixed numeric value for a bad credit score, anywhere below 550 is considered poor credit history in Australia. If you want to secure car financing from a reputable bank, your credit score must be above 650. However, you can find help from other lending institutions in Australia that help people with poor credit scores. But the interest rate is higher for people with poor credit scores.
How to Get a Loan With Bad Credit
Having a bad credit score doesn’t mean the end of the world for you. There are financial products designed to help people with poor credit history. Here are several ways you can borrow money with a poor credit score.
Peer to Peer Loans
A friend in need is a friend indeed. Borrowing money from individuals or a group of people gives you a way to finance your objectives. Many people are looking to earn interest on their money. If you can convince a friend or someone to loan you money, you won’t have to go to the bank. Moreover, you can even negotiate the interest rate and monthly payments.
Unsecured Personal Loans
Online financial institutions offer loans to people with poor credit; these financial institutions want to earn interest on their dormant cash. Moreover, there are several advantages of acquiring unsecured loans. For instance, you can request payment holidays and certain months when you won’t make payments to fix your monthly budget.
A credit union is a non-profit money cooperative whose members can borrow money without paying too much interest. A credit union doesn’t check your credit history, and it’s one of the best ways to secure a small loan. If you have a substantial down payment but don’t have a few thousand dollars, you can go to a credit union for a loan. The membership is easy to attain in most cases.
Find a Co-Signer
A Co-signer is a person with an excellent credit score vouching for you. A co-signer can be anyone who trusts you. This person signs the loan document promising to pay on your behalf if you cannot repay your loan. Apart from getting a loan, your interest rate is also decreased if you have a cosigner.
Improve Your Credit Score
One of the ways of getting a loan with bad credit is to improve your credit score. When everything else fails, this is your only option. Improving your credit score isn’t as challenging as it may seem. Sometimes your credit score drops temporarily because you have too many active loans. In most cases, a sudden decrease in credit score is due to faulty credit statements. You can challenge the transaction in your credit statement and send the correction to your credit bureau.
Check Out Multiple Lenders
Once you have started improving your credit score, it’s time to shop for lenders with the best rates. This will improve your chances of getting a loan. What’s a low credit score for one lender isn’t necessarily the same for every financial institute. So keep your options open and talk to as many banks as possible.
Loan You Should Avoid
If you are in the market for a loan, you should evaluate your finances. Most people make the mistake of signing loans with high premium and monthly payments before evaluating how much money they can take out of their budget. This affects their lifestyle, and such people are bound to live paycheck-to-paycheck until the loan is repaid.
The only type of loan you should avoid is one you cannot pay for. By missing payments or causing delays, you decrease your credit score, further causing more problems in the future. A slight decrease in your credit score might not make you ineligible for a loan, but you’ll have to pay high interest. Therefore, skipping loans that you cannot pay is the right option.
If you are in dire need of money, you can apply for a payday loan. These loans will keep your afloat, and the repayment amount plus fee will automatically be deducted from your next paycheck. But remember, payday loans are for a relatively less amount, such as $500 or $1000. So you won’t fulfill your expensive needs like buying a car.
The Bottom Line
Credit scores are crucial to surviving in this financially-driven economy. After all, no one will trust you with their money unless you have a good repayment history. Regardless, there are a few ways you can finance your objectives. The information mentioned above is a good start. But knowing when to take loans and when not to is also crucial to protecting your sanity. If you indulge yourself in loans you cannot repay, you take unnecessary stress and decrease your credit score.