The best way to select a loan for bad credit

Those with bad credit tend to come with higher interest rates and charges than other personal loans. But, you can get reasonable rates. Here are a few suggestions for choosing the most suitable loan for your needs:

Compare requirements for eligibility

Some lenders list their eligibility requirements on their sites generally under the loan description as well as in their FAQ sections. Find out details like requirements for minimum credit scores, minimum income, and the preferred ratio of debt-to-income.

If your top choices don’t divulge this information, keep in mind that the majority of lenders with bad credit are more inclined to credit scores above 580. In addition, many lenders favor clients with a debt-to-income (DTI) ratio that is less than 36%.

To determine the DTI ratio, simply divide the total amount of your monthly debt (mortgage and auto loans for instance) with your average monthly earnings. In the example above if your monthly debt is $1,000 and your total monthly income is $3,000, then your DTI ratio will be 33 percent (1,000/3,000=0.333).


A pre-qualification is an approximate estimate based upon basic financial data, such as your earnings and the amount of debt. It can give you a notion of the amount the lender is willing to give you. Although these aren’t any formal offers they can be beneficial when making comparisons between the different loan options.

Prequalification lets you know whether you’re eligible to borrow money from the lender you prefer, and avoid numerous hard inquiries. Formal loan applications, in contrast, are subject to hard inquiries which are also known as credit checks which will be noted in the credit report and could lower your credit score even more.

Pre-qualifications, on one side, require only the use of a credit report. These inquiries don’t impact your score.

Compare rates of interest as well as fees and terms 

Interest rates for loans with bad credit can be up to 36 percent. But, it is easy to locate loans that have less expensive rates. Compare the rates offered by various companies prior to applying formally. Compare their origination, prepayment, and late payment charges.

The terms of repayment for personal loans generally range from 24 and 60 months. Remember that a shorter repayment period implies that you’ll be able to settle your debt earlier and pay less interest (although your monthly payment will be greater). A longer repayment period will lower your monthly cost but you’ll be spending more on interest over the course of time.

Online as opposed to brick and mortar lenders 

Most bad credit loans are online lenders. They usually offer more flexibility in eligibility requirements and have a lower cost of borrowing than banks that are traditional. But their client support is only accessible via email, online forms, and telephone. Certain clients might not be comfortable through a customer service that is online only. The presence of retail stores at traditional credit unions and banks however could make certain people feel more at ease when making a loan application or handling complaints.

Think about a secured loan or a co-signer 

If your options for a loan are limited, requesting secured loans or using co-signers could increase the odds of approval and help you secure a better deal.

Secured loans are when the debt is secured by collateral such as houses or cars. If you fail to pay this loan lender will take over the amount. If you have a co-signer, they are responsible to pay the loan in case you do not pay.

Review Your credit report and score

 Looking over the details of your credit report and score before looking for loans can assist you in understanding your chances of getting approved. Reviewing the information on your credit report can also help you find out if there is any incorrect or outdated financial information that might have an impact on your score. Learn how to examine the contents of your credit report for tips for understanding the information that is reported.

About Johanna Gooding