5 Borrowing Options When You Have A Poor Credit Score

Living in the golden age of credit, absolutely no one is ever deprived of funds, irrespective of credit scores, incomes, jobs, or even bankruptcies.

Even if you’re cut off from the legacy sources from banks and financial institutions, there are a wide range of private sources such as peer-to-peer lending, payday loans, credit cards, and cooperatives that offer second chances to almost anyone, with any kind of past.

If you’re stuck with a poor credit score, there are plenty of options to access the necessary funds, for either emergencies, investments, or big-ticket purchases, without agreeing to any predatory terms or interest rates. 

In this article, we cover a few popular services and borrowing options that don’t just cater to individuals with a poor credit score, but can even help in reestablishing and growing good credit.

1. Find A Cosigner

For individuals with bad credit, one of the best ways to still borrow from legacy banks and financial institutions, at reasonable interest rates, while rebuilding credit is by getting a cosigner for the loans. A cosigner should preferably be a friend or relative with good financial standing, which means to say, a better credit score, unencumbered assets, and not much in the way of liabilities.

Of course, this means that the cosigner will be equally responsible for the repayment of the debt, and in case of defaults, or late payments, even their credit scores are likely to take a hit. This is essentially based on trust, and people often get their parents, or close relatives to cosign their loans, which are often repaid so as to avoid putting personal relationships in jeopardy.

2. Credit Unions

For those who’ve slipped through the cracks of mainstream finance, credit unions offer a lot of value, especially since their interest rates remain capped at 18%. While they still have certain requirements for loan approvals, they might be willing to look past a low credit score, if you have a stable job, or even based on your character, ties to the community, and a promise to pay back.

There are specific credit unions for different professions and communities, for example, if you’re a veteran, the PenFed Credit Union, or the Navy Federal Credit Union can offer quick disbursals at lenient rates and terms. Similarly, other public sector employees can get priority at the State Employees Credit Union, or the Schoolsfirst Credit Union for teachers.

3. Personal Loans For Bad Credit 

While most mainstream banks will be reluctant to lend to individuals with bad credit, it doesn’t rule out personal loans altogether. Given the intense competition within this sector, banks and financial institutions are more than willing to bend the rules, especially if you can give them any reason to show your creditworthiness, to take the heat of your low credit scores.

There are certain lenders who primarily decide based on job and incomes, so as long as you’ve maintained a stable job for at least a few months, these are some of the best loans almost anyone can obtain. Interest rates will range from anywhere between 4% to 36%, depending on the risk factors, so such sources must be used only in cases of short term requirements, and emergencies.

4. Secured Loans

Even with a poor credit score, it is very much possible to get loans approved, when they are secured against assets such as real estate, stocks, savings, cars, or more. 

In case of default, the lender takes possession of the asset, but given the substantially lower risks involved in this regard, borrowers can get better terms, and lower interest rates, compared to the other options on this list.

5. Peer-To-Peer Lending

As the name suggests, P2P lending is borrowing and lending between individuals, using an online platform, as opposed to institutions. 

Even though this concept has been around for centuries, it has started gaining steam online over the past few years, and remains a great option for investors to mobilize their savings with high interest rates, and borrowers to quickly gain access to funds, irrespective of their circumstances. 

There are a number of online portals and marketplaces catering to this concept, with the most popular ones being FundingCircle, Prosper, and LendingClub. 

These platforms facilitate safe, and intuitive peer-to-peer lending, and even though they do include credit scores in listings, lenders are free to overlook the same, and offer credit based on alternative factors.

Final Words 

There is no shortage of options for borrowers, irrespective of bad credit, low income, or credit history, and for the discerning borrower, even a low-interest loan remains well within reach, provided they work to show the lender their ability to pay back.

A number of these sources should only be restricted to emergencies, and short term fund requirements, given their high APRs, and ability to trap borrowers in debt cycles. A few others, such as credit union loans, or peer to peer borrowing, can still be used for big-ticket purchases, or for setting up a business, depending on the terms and rates offered.