Securing quick loans is often a high priority if you’re in an emergency and struggling to pay your essential bills or sudden repairs. They’re a good gateway to getting urgent cash, as they’re easier to get compared to traditional loans.
That said, small loan lenders charge a higher APR to ensure that it’s worth their time. Your loan application may also be rejected if you don’t meet their eligibility criteria, especially if you’ve got a poor credit score.
Fortunately, you can get a small loan despite bad credit. However, qualifying for these loans requires making a few smart financial choices.
In this guide, we’ll explain how you can qualify for a small loan even if you have a poor credit history.
1. Explore alternative lenders
Credit score criteria differ based on various lenders’ policies. Some lenders may lend you money despite a bad credit score, while others may have stricter credit score thresholds.
It’s always better to compare your options and opt for the lender who can help you the most efficiently in emergencies. Online lenders, credit unions, peer-to-peer platforms, and personal loans may all be viable financial alternatives to traditional loans.
However, due to the high interest rates of small loans, you’ve to remain mindful of the debt you’d be taking if you were to choose that as your loan option. Carefully evaluate the risk factor and your current financial situation before deciding whether you should commit to the loan or not.
2. Add a co-signer
A co-signer is a third party (typically a close friend or family member) who agrees to make repayments on your behalf if you’re unable to. With the help of a co-signer who has a strong credit score, you can bypass the credit requirement of lenders, as they become more confident in qualifying you for the loan.
Additionally, having a co-signer may help you get better interest rates on your loan compared to unsecured bad credit loans. This is because co-signers are required to have a strong credit score along with a stable income.
That said, your co-signer’s credit score will be affected negatively along with yours if they fail to repay the loan on your behalf. This makes it essential to have a clear understanding with your co-signer about the responsibility they’re undertaking and set clear expectations.
3. Apply for a secured loan
If your credit score is too low for any small loans, consider applying for secured loans. These are loans where you’ve to offer collateral, such as a vehicle, savings account, property, or other valuable assets. This reduces the lender’s risk and increases your chances of approval despite a bad credit score.
Since the lender has the assurance of your collateral, they typically offer more favourable terms at lower interest rates. Your credit score will also improve if you’re able to pay the secured loan back on time.
However, secured loans (even small amounts) have a longer repayment period. Additionally, if you’re unable to make your payments, the lender has the legal right to seize your collateral. This makes it paramount that you commit to a secure loan only after thoroughly reviewing your repayment plan.
4. Check and improve your credit score
If possible, improving your credit score can enhance your chances of securing a small loan with better terms. You can start by paying off outstanding debts or reducing credit card balances to lower your credit utilisation ratio.
However, we understand that such practices can be particularly difficult in emergencies when immediate funds are a priority. Instead, you can focus on identifying any errors or inaccuracies in your credit report (such as incorrect balances or outdated payment statuses) and disputing them to boost your credit score.
Additionally, avoid applying for multiple loans at once, as it triggers hard enquiries on your credit report and can potentially lower your score. Instead, research lenders carefully and apply only when you’re confident about approval.
To sum up
Small loans can be a valuable financial option to have access to, especially if you need to pay off unexpected expenses. However, it’s difficult to secure a small loan if you don’t meet the lender’s credit score criteria.
Thankfully, you can still qualify for small loans by making smart financial decisions and being proactive. The chances of your loan application getting approved can significantly increase if you choose to opt for the options we’ve listed in this article.
Successfully following these practices can gradually improve your credit score. As a result, you would have a higher chance of securing future loans with more favourable interest rates and repayment terms.
Throughout this process, you’ve to keep building positive spending habits to strengthen your financial profile over time. Be mindful of your expenses and avoid making impulsive purchases. This way, you’ll be in a much better position the next time you need to get a small loan.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any finance decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.
