Getting a Loan With Bad Credit – Things To Avoid
The first thing to know about getting personal loans for a credit score under 550 is that not all loans are good loans. A credit score of 579 or less is considered poor. As stated, a lower credit score means you’ll be looking at higher interest rates, and some loan providers take advantage of potential borrowers who want loans fast. Take your time when you’re searching for a loan, and don’t jump at the first offer that seems too-good-to-be-true (because it probably is). If you need help checking your credit score, it can be done for free.
One common trap personal loan borrowers fall into is precomputed interest. Simply put, precomputed interest is a method some lenders use to ensure you’ll pay a full term’s worth of interest on your loan, even if you pay it off early.
For example, if you take out a loan with a 36-month term, interest will accrue each month for those three years until the principle is paid off. However, if you get a bonus at work, and you want to pay off the entire loan after only 28 months, you can do so and avoid paying those additional 8 months of interest. This can result in a hefty amount of savings.
With a precomputed, or “precompute” loan, the total amount of interest you would pay over those 36 months is calculated (precomputed) up front and added permanently to the principal balance. Even if you pay off your loan early, you’re responsible for paying the full 36 months’ worth of interest.
A good rule of thumb is this: if you see the words “precomputed interest” anywhere on your loan terms, even it’s advertised with the misleading tagline “no prepayment penalty”, don’t sign.
While precomputed loans are an indirect way of charging a prepayment penalty, many loans directly charge a penalty if you want to pay off your loan before the end of your term. Prepayment penalties are rare, and most lenders don’t include them in their terms, but it’s always wise to ask.
The best way to go getting personal loans for a credit score under 550 is planning ahead. However, many lenders will attempt to derail you during closing by upselling additional services like insurance. Watch out for sales pitches for services that tack on extra charges to your monthly bill—life insurance and unemployment insurance are the most common ones—even if they come at a “special discount”.
Be wary of origination fees. An origination fee is essentially a fee for borrowing money, but many lenders do not require a fee up front since they make their money through the interest payments. An origination fee is just going to make the loan more expensive and should be avoided when possible.
Tap Friends and Family
A simple way to avoid the pitfalls of borrowing from larger corporations, including hidden fees, penalties, and upselling, is to borrow from someone you know and trust. Borrowing money from a friend or family member isn’t always a smart option—it can damage your relationship if you’re not truly prepared to pay back the loan. But if you have a strategy in place, you’re willing to pay interest to your friend or family member, and you can even devise a contract for you both to sign, you can save money and a lot of hassle.
Enlist a Cosigner
Another way your loved ones can help out when it comes to getting personal loans with a credit score under 550 is by cosigning your loan. When they cosign your loan, your family member agrees to make payments on the loan if you fail to do so. Having a cosigner can help you get a more reasonable interest rate, or even get a personal loan when you would otherwise have been denied. Again, enlisting a family member as a cosigner can damage relationships if you’re not careful, so make sure you’re not in a position to miss loan payments.
Low-Credit Loans from Credit Unions
When friends and family aren’t the best option, your next choice should be your local federal credit union. Credit unions generally have lower interest rates than larger banking institutions, and they’re easier to work with when you’re paying off your loan. Federal credit unions offer more flexible loan terms and a maximum annual percentage rate of 18%.
Pre-Qualify and Compare
If an online lender is your only option, the best first step to take is to apply for prequalification and compare different loans. Sites like the ones below have tools available to help you estimate how much you can expect to be approved for and at what rate, but you won’t really know until you prequalify.
Prequalification does not have an impact on your credit score, so you can apply for several different personal loans worry-free. You’ll get a personalized quote for each loan you apply for, which will give you a much better idea of which one is right for you, rather than relying on advertising alone.
Best Personal Low-Credit Loans
When you’re ready to prequalify and compare loans, try these lenders:
Why Choose a Personal Loan
Getting a personal loan with a credit score less than 550 isn’t always easy, but it is often your best option if you’re in need of cash fairly quickly. Personal loans come at lower interest rates than most credit cards, and applying for multiple loans to compare them won’t impact your credit score. Borrow only what you need, make sure you can pay off your loan early if you want to, and plan ahead for your monthly payments, and you’re well on your way to success with a personal loan.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.