Intro: How to Get Small Loans—Bad Credit Borrower | Loans for People with Bad Credit
Trying to secure a small loan when your credit is bad can be frustrating. If you made a few financial mistakes in the past or fell on hard times, getting a loan is difficult.
The good news is that there are small loans for bad credit—you just have to look for them and do your research. Not every company offering small personal loans for bad credit are legitimate. Some companies may even resemble loan sharks.
In this brief overview, you will learn about the different types of small loans for bad credit, what to look for when applying for a small loan for bad credit, and scams to keep an eye out for, as well as a few tips to help you repair your bad credit score.
Although several providers are covered, it is imperative that you do your own research before applying for any small loans for people with bad credit from a specific company.
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Types of Small Loans for People with Bad Credit
There are several types of small loans for bad credit available, although you need to be wary of a few of them. Some of these companies that offer small cash loans with bad credit are actually illegal in several states due to their practices.
Personal Loans
The most popular small loans for bad credit are personal loans. Small personal loans for bad credit are available at many banks and credit unions. If you are a member of a credit union, you may have an easier time securing small bad credit loans than through a traditional bank.
Credit unions use funds that are currently on deposit, and its members are the owners. Credit unions tend to provide small cash loans for bad credit in flexible amounts and for any purpose. The APR rates tend to be lower with credit unions than with other providers.
The bank or credit union may require collateral before approving bad credit small loans in order to ensure the provider will receive something of value back if you cannot make the payments. This collateral can be in the form of your savings account, home, or automobile.
Some banks may also ask you for a co-signer to take responsibility of the small loan for bad credit in case you have to default. Unfortunately, a default on any type of small personal loans for bad credit can quickly end friendships and damage your relationship with relatives. You may want to weigh the importance of bad credit small loans before involving friends and family.
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Mortgage Loans
Before turning to an online provider for small bad credit loans when trying to secure funds for a down payment on a home, consider contacting the U.S. Department of Housing and Urban Development (HUD) and asking about the Federal Housing Administration (FHA) loans.
Depending on your circumstance, you may end up only paying a down payment of 3.5 percent of the home’s price.
They also have specific programs for consumers needing small loans for people with bad credit to purchase a mobile home or modular home to place in a mobile home park as well as landowners needing small cash loans with bad credit for a mobile home to move onto the land.
Your state and local government may be able to help you with your down payment through local home-buying programs.
You can search for these programs on HUD’s website by state. Certain programs provide homeownership vouchers and assistance programs.
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Auto Loans
When you need small personal loans for bad credit to purchase an automobile, you may be able to deal directly with the automobile dealer. Depending on the dealer, however, you may face a high APR, low financing amount, and a shorter life of the loan.
You can also get auto loans through online lenders, but check to see what their terms and requirements are for small bad credit loans. Some companies will not agree to small loans for people with bad credit if you plan to purchase the automobile from a private seller, want to buy a car for a smaller amount than average price, or pay more than $40,000 for a car.
Auto Title Loans
Auto title loans can be tricky. In this scenario, you use your car as collateral in exchange for a small loan for bad credit. The lender keeps the title of your automobile and writes a short-term loan agreement.
Typically, these short-term loans have very high interest rates. Some companies allow the owners to make the interest payments and extend the life of the loan.
This begins a vicious cycle that many car owners may be stuck paying much more than they had intended for bad credit small loans or have their automobile repossessed when they cannot make the payments.
The Center for Responsible Lending (CRL) reports that auto title small personal loans for bad credit can start out with a 25 percent interest rate for the first month; however, if the life of the loan extends out to one year, you will actually be paying 300 percent.
Payday Loans
Payday loans are considered predatory and are actually illegal in many states. Even Google has stopped promoting payday loans, according to the CRL.
The problem with payday loans is the interest and fees that accrue, as well as the repayment plans. For example, if someone needs small cash loans with bad credit and receive a consistent income while maintaining a bank account, they can be approved.
However, many people find it difficult to pay back the small loans for bad credit and still have money left over.
Thus, a vicious cycle begins, similar to the auto title loans. Borrowers give permission for the lender to automatically withdraw the payments from their checking account. This can lead to overdraft fees.
CRL reports that the average APR for a payday loan is 391 percent. States are working to enact an interest rate cap of 36 percent to keep unscrupulous payday loan lenders from taking advantage of people needing small personal loans for bad credit.
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What to Look for When Applying for Small Loans for Bad Credit
Before approaching any lender regarding bad credit small loans, research each company both online and through the Better Business Bureau (BBB). There are a few things you will want to keep in mind before applying for small bad credit loans.
- Larger loans—Some companies place limits on the amount that borrowers with bad credit can be approved for; however, larger companies with years of experience may be able to offer you larger loan amounts.
- Sensible APRs and fees—Legitimate companies will charge you a higher APR, but this should be at a competitive rate in accordance to your credit score. Watch for companies that gouge their borrowers with high APRs and fees.
- Negotiable terms—An efficient company will work with you to ensure you can pay back the small loans for bad credit during a reasonable term.
- Reputation—Experts gauge a company’s worthiness and credibility through their reputation and length of time in business. Research the BBB as well as online directories to look for reviews written by borrowers.
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Common Loan Providers for Small Personal Loans for Bad Credit
The following is a list of common loan providers for small loans for bad credit featured on review websites:
- Springleaf Financial: Springleaf offers personal and auto loans from $1,500 to $25,000. Recently the company acquired One Main Financial to reach more borrowers with more than 1,800 branches in 44 states. They work with customers with credit scores below 600.
- PersonalLoans Website: PersonalLoans.com contacts lenders on your behalf, so you may receive several offers to choose from in small personal loans for bad credit. The borrowing limit is up to $35,000.
- Bad Credit Loans: Bad Credit Loans puts you in touch with lenders if you meet their criteria, and you can choose the best option from the companies that contact you. You can check to see if you are pre-approved in less than five minutes.
- Avant Unsecured Loans: Avant typically works quickly with same-day approvals. Borrowers can have a credit score between 580 and 700 and still qualify for small loans for bad credit. The borrowing limit is a high $35,000.
- Peerform Loans: Peerform is a form of crowdsourcing, so there is no guarantee lenders will fund the full amount of your loan. The loans are available in 37 states, and you can borrow up to $25,000.
- One Main Financial: One Main has a long history of lending small loans for people with bad credit. You can receive a loan up to $15,000. The average borrower has a credit score of 630.
This is a short list of the common lending companies, but before you contact one, make sure you research and compare each company through the BBB and other review sites.
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Avoiding Scams When Applying for Small Loans for Bad Credit
Use caution when applying for small personal loans for bad credit from any lender and keep in mind that even with a low credit score, you should receive reasonable APRs and flexible terms. If a lender requires you to pay an application fee, walk away as quickly as possible—this practice is illegal.
Any lender that guarantees your approval for small cash loans with bad credit before taking your personal information and financial history under consideration may be approving as many borrowers as possible to make money. Also watch out for companies with names similar to large, well-known lenders. This may be a tactic to confuse borrowers into thinking they are working with the legitimate lender or its branch office.
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Tips for Repairing Your Bad Credit Score
Repairing your bad credit and increasing your credit score is possible, but it may take time. If you don’t know what your credit score is or haven’t taken a look at your credit report recently, you need to get a hold of a copy. Sometimes there are discrepancies on credit reports and if you challenge the company with the claim, they may erase the debt.
You can find several companies online that offer free reports, including Credit Karma. Make sure the credit reports are free and you do not have to enter any credit card information. These companies provide “constant monitoring,” but you may not need the service and can use the monthly subscription fee to pay off debt.
Debt is a large factor in a low credit score, and it is a barrier to you getting small personal loans for bad credit. Once you are aware of all of your debt, tackle each one, paying off the smallest debt first. There are several programs online that can help you get started. Although this tactic can take some time to pay off your credit cards, medical bills, and automobile loans, eventually you will see a higher credit score.
Making those payments on time and paying more than the minimum amount raises your score without too much effort on your part. Once your credit score increases, you may have an easier time securing a small loan for bad credit during an emergency and be approved for a higher loan amount.
It is possible to secure small loans for bad credit as long as you research and compare the lenders before applying. Keep an eye out for scams and predatory companies. There are plenty of legitimate companies across the United States willing to approve small personal loans for bad credit.
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