When you’re seeking a loan of any kind, there’s a lot you may be afraid of. You may need the money quickly but you’re afraid to jump at the first offer you get. You may be worried that most lenders will turn you away because of your bad credit score. You may be afraid that your money won’t come fast enough. More than anything, you may be afraid of making a decision that will hurt your chances of getting a guaranteed bad credit loan.
I understand your anxiety. There many people who come to regret the loan they’ve taken out, especially amongst homebuyers. J.D. Power reported that 21% of people who took out a mortgage in 2016 came to regret the lender they chose. While that’s specific to the mortgage industry, we’ve seen similar results across the entire lending market.
But despite your fear and trepidation, let me be the first to tell you that it is very possible to find a great loan that you’ll be happy with from the start. To help you in your search, here are five effective tips you can use to improve your chances of getting guaranteed loans for bad credit.
1. Get Your Credit Score Up First
If you can afford at all to wait, my first recommendation is to get your credit score up. This will not only increase your odds of being approved for a loan but also allow you to get better interest rates, a better APR, and higher loan limits. Even if you know you’re seeking a guaranteed bad credit personal loan, having a higher credit score will help you.
I understand if you have something like an emergency car repair that can’t wait, but otherwise, take the time to build your credit first.
Why are Credit Scores Such a Big Deal Anyway?
Your credit score is a big deal because it indicates your risk to a lender. No lender worth their salt doesn’t consider the risk involved in loaning out money. They have bills to pay and families to care for just like you do. If there’s a good chance that you won’t pay back your loan, that means they lose money too.
Don’t be fooled by advertisements that say things like, “Bad Credit Personal Loans with Guaranteed Approval and No Credit Check!” Ads like that only lead to scams and no credit lenders who will trap you in debt. There’s no such thing as guaranteed loan approvals if you want a loan that won’t scam you out of money.
2. Understand Common Terms Before You Shop
In order to find a great deal, you need to understand how loans work before you shop for one. The simplest place to begin is with the terms used in the lending industry. Some of the most common include:
- Principal – The base amount that you borrow (it can also mean your outstanding balance after you start repaying a loan).
- Interest Rate – The amount charged for getting access to the loan. Given as a percentage rate.
- Annual Percentage Rate (APR) – A percentage on the loan, combining the interest and fees, that you pay each year.
- Debt-to-Income Ratio (DTI) – A percentage of how much money you bring in versus how much you have to spend. For example, if you make $3,000 a month and pay $1,000 a month in bills, your DTI is roughly 33%
- Prepayment Fee – A fee that is applied if you pay off the loan before the agreed date. Many lenders don’t have prepayment fees.
- Processing Fee – A fee charged to prepare your paperwork, underwrite your loan (if it’s required), and process your loan. It averages about 1 to 2% of your loan’s value.
- Underwriting – The process of reviewing a loan to make sure the terms are feasible. Not every lender underwrites a loan. It’s more common in mortgages and loans for larger amounts than typical personal loans.
By having a solid grasp of what these terms mean, you won’t feel as confused when shopping for guaranteed online bad credit loans. You’ll also be able to talk with lenders on an equal level and have an easier time understanding your loan contract.
3. Gather Your Documents Before you Apply
In order to save time in processing your loan, and get your money faster, have your documentation ready before you apply. The documents required vary by lender, but in general, you’ll need to provide the following:
- A Form of Government-issued ID – driver’s license, birth certificate, social security card, passport, etc.
- Proof of Residency – A recent utility bill, a rental contract, or the deed to your home will all suffice. If you’ve lived in your residence for six months or less, be prepared to provide addresses for up to two years back.
- Proof of Income – This should be anywhere from three to six months worth of either bank statements or paystubs. I’d recommend bank statements as it will also help your lender calculate your DTI.
- Tax Returns up to Two Years Back
- Your Employer’s Contact Information
4. Settle Your Other Debts
Since DTI plays a large factor in determining if a lender will work with you, you should settle as many other outstanding debts as you can before you apply for a new loan.
Typically, the types of financial obligations reported in a DTI calculation are recurring and have a set minimum. Costs like a car loan, mortgage, rent, and college loan payments apply. Things like grocery, utility, credit card and gas bills usually don’t because they vary month to month. The lower your DTI, the better your chance of getting approval for a loan.
According to the Consumer Financial Protection Bureau, many lenders are hesitant to work with anyone with a DTI above 43%. They also tend to reserve the best rates for DTIs of 35% and less.
5. Compare Lenders Before You Commit
Even if one lender turns you down, another may be willing to work with you. Even for the ones willing to work with you, the only way to ensure that you get the best deal is to compare rates between lenders.
Normally, this can be a tedious, time-consuming process. Some estimate that it can take as long as 14 days to find the best deal. That’s the bad news; the good news is that there are resources available to help speed up the process.
Whether you use these resources or not is entirely up to you, but I’ll offer you a word of warning. Loans can be challenging for everyone. There’s a lot to think about, and if you don’t have extensive experience, you’re opening yourself up to be taken advantage of. Your best bet is to use the resources available, and speaking with loan experts before you commit to a loan.