In this guide, we will outline the benefits and drawbacks of taking out a personal loan with 600 credit score or lower. These products can be a good option to cover various unplanned and larger expenses, but there are challenges low credit borrowers will face in getting approved.
What Scenarios are Not Ideal for a Personal Loan?
Mortgages and auto notes are backed by the physical assets themselves and will typically come with a better interest rate and terms than a personal loan. This is especially the case for borrowers with lower credit. Student loans and other specialized products are always the best choices for their respective uses, as they account for other factors besides credit score and history.
If you’re worried about your credit score, here are some ways to improve your situation and qualify for the best rate and terms possible.
How to Get a Better Loan With a Low Credit Score
Review your credit report – The very first thing you should do is review your credit report to make sure that there aren’t any delinquent payments or other red flags. Mistakes and oversights are common, and you may not even be aware of the issue.
Improve your credit score – Once you’ve checked installment loans Minnesota your credit report, the simplest way is to wait and work to improve your score over time. Timely payments, actively maintaining various credit lines, and ensuring you don’t max out your charge cards will make you more qualified to borrow in the long term.
Apply with a cosigner – If you need a loan right away, the best option may be to use a cosigner in good standing to help you qualify. In the eyes of the lender, a solid cosigner means that there is less risk associated with getting you approved. Even if you qualify without one, a cosigner with great credit and/or a longer credit history will earn you a better interest rate.
Finally, make sure you shop around for different options from various lenders to get the best deal you can. Here’s how to apply and compare rates.
How to Apply
Use this calculator to help you determine what you can borrow based on your desired terms and interest rate. Next, pre-qualify with a reputable lender.
Once you’ve shopped around and compared rates, you can complete the application process and get approved. This is what you’ll need:
Checklist
- Credit report
- Personal ID
If you’re still concerned about whether an unsecured loan is right for you, here are some frequently asked questions you may be wondering about yourself.
Q: What is the advantage compared to a credit card? A: While their uses often overlap, personal loans make it possible to get approved for much more than a typical credit limit on a card. The other main advantage is that you can secure one for a fixed interest rate instead of a variable APR like a retail credit card.
Q: If the interest rate is higher for a personal loan, why not pick a secured one instead? A: If a secured loan is an option, you’ll probably get a better interest rate, especially if your credit is low. Keep in mind, the lender can seize the collateral if you default, so consider whether or not it’s worth the risk. If a cosigner is an option, that may be the best way to improve the terms and interest rate while keeping your asset(s) safe.
Q: How long before I need to pay off the loan? A: Terms typically range from 12-84 months. Usually, the shorter the term, the better the interest rate.
Summary
For many, personal loans can be a great way to cover larger expenses. Manageable repayment terms, fixed-rate options, and a wide variety of uses are just some of the advantages compared to other products. Even with bad credit, there are options. Whether you elect to use a consigner or improve your score over time, a personal loan can be a helpful tool in attaining your financial goals.
