Personal loans for bad credit borrowers: The best options

Finding the best possible loan terms can take some searching, but when it comes to getting personal loans for bad credit management purposes, the challenge can be so much more testing. Why? Lenders are a little hesitant to provide such loans unless they are protected by high interest rates and low principal.

But that’s not to say bad credit lenders aren’t possible. There are lenders who offer competitive terms and provide approval with low credit scores. However, this generally means avoiding the traditional lending institutions and approaching either alternative providers or online providers.

But what are the options for a bad credit borrower in search of good terms on a personal loan? Well, there are three popular source options. Namely, established traditional lenders, online lenders and private lending companies.

A traditional bank loan

Some banks are willing to take on the risk of lending to an applicant with a bad credit history. The cause usually comes down to the purpose of the funds. Approving a personal loan for bad credit management purposes is seen as less of a risk than a general loan. The borrower clearly wants to improve their situation.

The problem is that banks charge much higher interest rates on these loans, often 2% – 3% more than the normal interest rate, depending on the amount requested and the bank lending policy. And to have any chance of approval with low credit scores, the applicant must be an account holder and may need to provide collateral.

There are some benefits to this deal despite the high interest. First, a personal loan approval is more likely if the relationship with your bank is good. Secondly, they already know your credit history. Finally, they are more likely to bend the policies, such as extending the payback period, from e.g. 5 years to 10 years, to make repayment more affordable.

A private lending company

Lending companies operate independently of the established banks and have less stringent lending policies to attract business. They specialize in lending to bad credit borrowers, and as such, the terms of their personal loans to bad credit lenders are pretty good.

However, repayment is affordable, mainly because the repayment period is longer than normal, sometimes extending to as much as 30 years. This lowers the proportion of principal repaid each month, so approval with a low credit score is not a problem.

But this also means that the interest paid over the life of the loan is extremely high. The question is where is the total cost of the personal loan worth it and usually the answer is yes. Private lending companies are also very open to restructuring existing loans, so there is always an option available.

Online lenders

There is no doubt that online lenders are fast becoming the most popular alternative to traditional banks as a source of loans. And when it comes to personal loans for bad credit borrowers, the terms offered are very hard to beat.

For starters, interest rates are usually 1% lower than usual – although this may not be the case when credit scores are very low. The lower rate is mainly due to lower costs, so lenders can afford to be more generous. So it is more likely to get approval with low credit scores.

However, there are risks involved as well. It is important that online lenders check out before committing to a personal loan agreement. Consult either the Better Business Bureau website or the Verify1st website to check their reputation.