Some borrowers may feel that they don’t have many options when it comes to personal loans. Even though loans are easier to obtain with better credit, there are lenders willing to work with borrowers who have poor credit.
While personal loans for poor credit can come with stricter terms, getting one can be useful for paying off debts when one needs to. Here’s what to know about how personal loans for poor credit work and the different ways borrowers can use this type of loan.
How personal loans for poor credit work
Some lenders specifically cater to individuals with low credit scores. Borrowers need to review different loan companies to see if their credit score meets the minimum requirement. Lenders also evaluate an individual’s earnings, assets, debt-to-income ratio, and savings to decide whether to approve an applicant for a loan. Individuals with poor credit can generally expect to pay a higher interest rate on their loans.
The lender will generally offer you the length of the personal loan upfront. A loan term can be anywhere between several months to a few years. Shorter terms may come with a lower interest rate but higher monthly payment. Longer terms will have lower monthly payments and higher interest rates. Since lenders have to run a hard inquiry on an applicant’s credit, this will initially cause a decrease in your credit score. If approved for the personal loan, you may improve your score over time with consistent on-time monthly payments.
Ways borrowers with poor credit can use personal loans
Borrowers with poor credit can use personal loans to help with covering a variety of expenses, including:
- Medical bills: If you suffer an unexpected illness or injury, a personal loan can be used to pay for medical expenses. An unexpected illness or injury can sometimes cause an individual to take unpaid leave or even end up unemployed. Getting a personal loan can help a borrower continue to pay for daily living expenses, such as groceries and transportation.
- Rent and bills: If an individual is unemployed for an extended period of time or low on funds temporarily, a personal loan can cover rent and other bills.
- Home or car repairs: You may experience unexpected damages to your home or need car repairs due to an accident. A personal loan can help cover the cost of these repairs.
- Debt consolidation: Some borrowers may have creditors that are currently charging them a high-interest rate. If there’s a personal loan available that has a lower rate, a borrower can consolidate their debts under the lower rate and save money on loan repayment.
The bottom line
Personal loans offer poor-credit borrowers fast funds to cover any expenses they need. Whether you have to pay an unexpected medical bill or consolidate debt, a personal loan can be a good option for borrowers with poor credit to consider when in need of money. Make sure to consider your needs and compare loans to find the right option for your financial situation.