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It is a given that the ideal dream for any lender offering a personal loan is for a customer who has the perfect credit score. However, in reality not everyone has a noteworthy credit score. Your credit report will never reflect the reasons behind your less than average credit score or your trying financial situation, it will merely certify you with a grade as part of a score that every legal financial institution will require before they get into any professional relationship with you. Yes, it may be difficult to get a personal loan when you have a poor credit score, but nonetheless, it is not impossible.
There are a few solutions that you can try from your end to push your personal loan application for approval. The first and most obvious of them is to explain your current financial status to the bank. As previously mentioned, your credit report is like a report card which merely contains a grade, but you will have an edge when you personally communicate with your lender, the reason behind that grade. You need a strong reason to explain to the bank as to why you have been falling behind on your payments and provide all the supporting documents to verify the same. The only reason lenders usually hesitate to provide a loan to a customer based on a poor credit score is because they doubt their ability to make payments on time. It is important that whatever story you provide to the bank are backed up with sound evidence, as all lenders will look for it, for instance, in case of a medical emergency, you will need your medical bills and statements as proof. The documents can also include your bank statements, detailed credit report etc. that can substantiate your current financial status much better than a grade on a credit report. Currently there are many firms in Singapore that prepare such detailed credit reports, you can seek their assistance in doing so before approaching your potential lender.
Even if a lender agrees to grant you a personal loan, due to your poor credit history, they may do so by charging a high interest rate. In order to avoid this situation, you can take a personal loan by putting down a cash deposit for a security or as a collateral. The amount of the deposit however will vary depending on how poor your credit score is. You can also put down your property as collateral to get a better interest rate. It is advisable to note that in case you are unable to make your loan repayments on time, your lender may have the power to forfeit your cash or property that you put down as collateral. Therefore, you need to evaluate your financial condition very carefully before you decide to put down a collateral.
You can even approach Credit Unions for a personal loan if your credit score is not up to the mark for private banking. Credit Unions are nonprofit organizations and therefore are more forgiving of your past credit. You can directly contact a credit union and explain to them your situation. If your reason is sound enough and you meet their requirement criteria, they may offer you the loan, even though they may also charge you higher rates of interest compared to what they offer customers with good credit scores, their interest rate structure will still be lesser compared to private banking.
If credit unions are not an option anymore, you can try Non- Banking Institutions as well. They are also legal institutions that offer different types of loans including personal loans. As they have to deal with the competition from banks and credit unions, they are the most forgiving of your credit history. Many of these institutes approve your loan irrespective of your bad credit score provided other conditions are met by you. However, it is also important to note that they charge one of the highest rate of interests when they offer loans. You will need to visit these institutions and inquire further regarding their conditions and their interest rate structures for your credit score.
An effective method of getting a personal loan at a good interest rate even with a bad credit score is to request someone to cosign your loan. You will need to ensure that your co-signer has a better than average credit score. This will reassure your lender your capability to make payments on time. Although this will not guarantee that your loan application will be approved, but it will definitely increase your chances. But note, that co-signing a loan can prove to be dangerous as well because whoever co-signs your loan will be accepting full responsibility in case you start falling behind on your payments. Also, their credit score can also take a major hit if you do not make the payments on time. Hence, be careful when requesting your loved one, be it family or a friend to cosign a loan.
If approaching an institution has been eliminated from your list, you can always try peer- to- peer lending (P2P lending). Under this scenario, you will directly be borrowing online from a person instead of an institution or a bank. This is increasingly becoming popular today because it offers one of the lowest interest rates to borrowers and at the same time, even the investors are able to earn high interest rates. There are many legit lending websites today where you can post your loan listing including how much you wish to borrow and why you need it. These lenders will then evaluate your application and check your credit score. Even though your credit score is still a factor in P2P lending, investors on this platform are way more empathetic towards your situation compared to any traditional bank or financial institution.
When you opt for a personal loan in place of a credit card or any other line of credit, you can help rebuild your poor credit score. This is because compared to other loans, personal loans have a relatively low interest rate structure and you have a more manageable stream of payment. When you start making payments on time, you also start repairing the status of your credit. Another added benefit of opting for a personal loan is that your lender may even report your payment history to credit reporting agencies, aiding them when generating your next credit report. In this manner, you will be able to build a better credit rating when you start making your payments on time. However, in order to enjoy this benefit from your personal loan, you will need to enquire from your lender if they report their customers’ payment history to credit bureaus.