Personal loans are versatile financial products used for a number of purposes. Most people who apply for a personal loan use it for consolidating debt, paying off medical bills, and home improvement projects. Many lenders offer a variety of personal loan products with varying rates, payment terms, and loan amounts.
Like any loan product, it is important to understand that aside from charging interest rates, lenders also charge fees. These fees vary from one lender to another. However, some lenders don’t charge additional fees for personal loans. For example, Marcus by Goldman Sachs is a personal loan product reviewed and found to have no additional fees and quick loan funding of as little as 48 hours.
Like Marcus by Goldman Sachs, you can find other personal loan products with attractive features.. But it all boils down to whether or not you will qualify when you apply. For personal loan applications, what lenders look at is your credit rating. Your credit score also dictates the interest rate charged on the loan.
What is a credit score and why does it matter?
Your credit score is a detailed list of your financial activity and history. It shows the lender how responsible you are in managing your finances. If you have a perfect credit score of 850, lenders will easily trust you and likely approve your loan application right away. Lenders usually have minimum credit score requirements for personal loans. If your credit score falls below the minimum, it might be hard to qualify for the loan product you are considering. Most personal loan lenders like Lightstream have excellent offers, but require borrowers to have good or excellent credit rating.
Is it possible to qualify for a personal loan with bad credit?
Getting a personal loan with a low credit score is possible, but is not guaranteed. In general, your credit score will not disqualify you from applying for a loan but could affect how much interest you will pay. Shopping around using an online marketplace like LendingTree will give you access to a wide network of lenders, thus have a better chance to get approved for a personal loan even with poor credit rating.
However, if you do get approved for a personal loan even with bad credit, it could be at a higher interest rate so that the lender can compensate for the lending risk.
Getting your credit score in shape
If you are looking at the possibility of getting a personal loan, you may begin by getting your credit rating in shape. A credit score of from 600 to 700 may be good enough to get you approved, but it can still be better. Raising your credit score by several points will make a significant difference in the personal loan interest rate. If you increase your credit rating to at least 720, it is possible to get a loan with single-digit interest rates, which is certainly the best case scenario.
Boosting your credit rating is possible if you focus on paying off some of your existing debt. Another option is to get a secured credit card to prove to lenders that you are a responsible payer. Lastly, being an authorized user under another person’s credit card can also help boost your credit score without having another credit card under your name.