Can You Still Get A Personal Loan With Bad Credit?

Your credit score is an important metric that many lenders use to determine if you are trustworthy enough to offer loans to. Those who suffer from a low credit score tend to have a hard time securing a loan. This is not an uncommon situation. Plenty of people have found themselves being turned away from traditional lenders due to poor credit scores.

Fortunately, a low credit score does not mean that you are completely locked out of getting a loan. There are practical strategies and insights that you can utilise in order to secure your desired funds despite your potentially troublesome situation.

Personal loans for bad credit

As mentioned previously, having bad credit scores does not mean you are locked out of getting a personal loan. In fact, there are personal loans out there designed specifically to cater to those who have trouble with their credit score. These kinds of loans will provide an additional avenue of emergency funding and typically come with a few key characteristics. These include:

Higher interest rates

An individual with low credit score means that they are a significantly riskier borrower compared to someone with a higher credit score. In order to mitigate some of this risk, lenders tend to offer personal loans with higher interest rates to individuals with poor credit scores.

The higher interest rates allows lenders to recoup potential losses more swiftly should the borrower default on their payments. While this is bad news for the borrower, it is essentially standard practice for lenders since they are also taking more risk in offering personal loans to said borrowers.

Higher fees

Apart from high interest rates, low credit score personal loans also typically have higher fees than regular personal loans. Some of these higher costs can include origination fees, late payment fees and prepayment fees. Similar to higher interest rates, these fees serve to mitigate as much risk as possible for the lender in case the borrower defaults.

Shorter repayment terms

When it comes to personal loans, repayment terms can vary wildly. However, if you have a good credit score, you can generally get a personal loan with generous and long repayment terms. Not so much with a bad credit score, which may result in shorter repayment terms.

A shorter loan term typically means that a lender lessens the amount of time they are exposed to the risk of defaulting on payments. On the other hand, this opens up the borrower to greater risk as they will have to make higher monthly payments in a shorter period of time.

As we can see, personal loans that are designed for low credit score borrowers come with a lot of risk and drawbacks for the borrower. Despite this, they still serve as a lifeline for borrowers who find themselves in challenging financial situations with limited options. It offers borrowers an opportunity to cover unexpected expenses, consolidate debt, or pursue other financial goals, even with poor credit scores.

How to get a personal loan with poor credit

While personal loans for those with bad credit exist, actually getting a loan approved can still be challenging. Here are a few strategies you can explore to improve your chances of getting a loan on bad credit.

Assess credit situation

A good first step is to understand where your credit stands and why. You can do this by obtaining your credit report from one of the credit bureaus in Malaysia, such as CTOS. You can then review this credit report for any discrepancies or inconsistencies. The more you learn about your credit report, the better you will understand what went wrong to cause your poor credit score in the first place. With this knowledge, you can start to address the issue.

Attempt to improve credit score

Just because personal loans for bad credit exist doesn’t mean you should stay in bad credit standing perpetually. Rather, these personal loans should be used to help improve your credit score. While it may be a slow and difficult process, repaying these bad credit score personal loans on time can help to demonstrate good and responsible financial behaviour. As such, it will demonstrate to lenders that you are becoming more reliable and trustworthy, which in turn will boost your credit score over time.

Consider alternative lenders

Traditional banks are not the only option for obtaining personal loans. If a traditional bank is refusing to offer you a loan due to bad credit, you also have the option of approaching online lenders, peer-to-peer lending platforms, or retail banks. These institutions tend to have more flexible criteria and are typically more willing to work with borrowers with lower credit scores.

If you need help finding alternative lenders, you can try using iMoney’s Smart Search tool to get you started.

Have a thorough repayment plan

When you approach a lender to obtain a personal loan on bad credit, it is best to do so with a proper plan in hand for repaying the loan. Be as thorough as possible and include important details such as income, expenses, and how you are going to allocate funds for repayment. You can also try including any positive changes to your financial situation, which may help to improve your chances of obtaining a loan.

With this, you should be able to get your personal loan approved even if you have a bad credit score. However, you should also make every effort to try and improve your credit score as staying at a low credit score can be highly inconvenient and damaging to your financial situation in the long run. If you are not sure about what is hurting your score, you can check out this article to help identify some pain points.

Additionally, if you need a few extra tips on how to improve your credit score, here are four financial moves that could help you out.