Online Loans For Bad Credit, Best Quick Easy Loans
There’s a good chance that, at some point, you might need a loan to help you get through a tight spot. Getting an online loan can be one way to get money fast. Some lenders can have the money in your account within a business day once you’re approved.
But what if you have bad credit? The good news is that it’s still possible to get an online loan for bad credit. However, there might be some additional hoops to jump through or other items to be aware of.
Let’s take a look at what you need to know about online loans for bad credit.
What does it mean to have bad credit?
First, it’s important to understand the credit system and what it means to have “bad” credit. The credit system is a way for lenders and others to review your history and determine whether they think you’re likely to repay the loan in a timely manner, according to the terms agreed on in the loan documents.
Credit history vs. credit report vs. credit score
Your credit history is basically everything about how you’ve used loans in the past. Examples of loans include:
- Credit cards
- Personal loans (including online loans)
- Car loans
- Home loans
- Lines of credit
- Payday loans
Your lenders might report the history of your payments to a credit bureau. This credit history is then collected into your credit report.
Credit bureaus keep a record of your credit report so that it’s easy for others to see. When you apply for a new credit card or an online loan, a lender can review your credit report and see your credit history. Your monthly payments, the remaining amounts on your balances and other information is present in your credit report.
Finally, with your credit history listed on your credit report, the information can be turned into a credit score. Using complicated equations, the history in your credit report is correlated with a number called your credit score.
The most-used credit scoring system is called FICO. There are different versions of your FICO score, but the important thing to remember is that many lenders make decisions about your overall ability to handle more credit on your FICO score, which places your credit on a scale between 300 and 850. The higher your credit score, the more likely your credit is going to be seen as “good.”
What impacts your credit score?
You should know what affects your credit score so that you have an idea of why your credit might be bad – and how you can potentially improve it over time.
In general, your credit score, especially your FICO score, is likely to be influenced by the following factors:
- Payment history: This is whether you make on-time payments and you pay the full minimum amount you’re expected to. If you’re late with a payment, it can mean a lower credit score. If you miss a payment, your score can be impacted even more. The more payments you miss, the greater the likelihood that your score will drop. In general, your payment history accounts for about 35% of your credit score.
- How much debt you use: Many scoring models call this credit utilization. It’s a percentage of available credit you’re using on accounts like credit cards. For example, if you have a credit card with an available credit line of $4,000 and you have a balance of $2,000, your credit utilization is 50%. You’re using half of your available credit. If you have multiple credit cards with balances, that’s all included. The FICO scoring model puts credit utilization at 30% of your score.
- Length of credit history: Lenders also want to know how long you’ve been using credit. If you’ve been using credit for decades, as opposed to being relatively new to using credit, you’re likely to have a higher score. Those without a longer credit history haven’t shown their habits, so the score might be lower. This accounts for about 15% of your credit score.
- Credit mix: Some lenders like knowing that you have different types of credit accounts. In general, credit scoring models look at installment loans vs. revolving credit. Installment loans are those, like many online loans, that require you to make regular payments at regular intervals. You have a set payment, and you know that once you fulfill the loan terms, you no longer owe the debt. Revolving credit, on the other hand, is like a credit card or other line of credit. You have a limit, and you can borrow up to that limit. As you pay down your balance, you “free” up more room to use again. The loan remains usable, but the payments aren’t predictable. They’re based on your balance. Credit mix usually accounts for about 10% of your credit score.
- New credit/credit inquiries: Finally, the remaining 10% of your credit score according to the FICO model is new credit and inquiries. If you have recently new credit, you’re likely to have a slightly lower score. If you’ve applied for a lot of new credit or loans in recent days or weeks, it can also result in a somewhat lower score.
Understanding what influences your score can help you understand why you might have bad credit and provide you with the information you need to start taking steps to improve your score – and make it easier to qualify for loans in the future.
Credit score ranges
This brings us to the concept of “good” vs. “bad” credit. If you’re told you have “bad” credit, it’s likely because your credit score falls below a certain number. Some general ranges to keep in mind when it comes to credit scoring models are as follows:
- Excellent credit: Anything above 740
- Good credit: Usually between 670 and 739
- Fair credit: Often between 580 and 669
- Bad credit: Below 580
Different scoring models might have variations, and there are different ways to measure credit. But, in general, it can be difficult to get a home loan with a score below 620, and it can be hard to get other types of loans with a score below 580.
However, even with bad credit, it might still be possible to get an online loan.
What are online loans for bad credit?
Online loans for bad credit are those specifically designed to provide funding for people with bad credit. Having bad credit doesn’t mean you’re a bad person. In fact, many people with poor credit scores end up there because of difficult circumstances or honest mistakes.
With an online loan for bad credit, there might be a way to improve your credit and eventually turn your finances around. However, it can be difficult to get one of these loans, and they can be somewhat costly. A loan for bad credit takes this into account and is designed to address some of these issues so those with less-than-perfect credit also have access to financing.
When you get one of these loans, you might be able to get out of a tough situation, but it’s important to be aware of the costs. Some of the characteristics of online loans for bad credit include the following:
- Higher interest rates
- Smaller dollar amounts
- Shorter repayment periods
- More frequent payment dates
- May require collateral
For example, a loan for bad credit might have an interest rate of 35.99% or higher (if the state doesn’t have an interest rate cap), and you might only be able to borrow up to $3,000. You might need to repay the money within six months, making payments each week or every two weeks. This is just one example. There are many different possibilities, with varying interest rates and repayment terms.
This is different from a loan for good credit. The interest rate might be lower, between 5.99% and 15.99% and you might have monthly payments for two to five years. Additionally, you might be able to borrow between $5,000 and $35,000, depending on the situation.
Finally, depending on the situation, an online loan for bad credit may require collateral. Collateral is something valuable that you use to “secure” the loan. It might be a car title, savings account, or some other item. If you don’t make payments, the lender can take the collateral. For example, if you’ve provided a car title as collateral for an online loan, the lender can repossess your car if you don’t make payments on the loan.
Secured vs. unsecured loans for bad credit
The potential need for collateral is important to understand because it can be part of any loan discussion, no matter your credit.
Two main types of debt are:
- Secured: Requires collateral. You provide something of value that the lender can take if you don’t make payments. For example, a secured credit card usually requires that you make a large cash deposit upfront. Pawn loans and car title loans are also examples of secured loans.
- Unsecured: You don’t have to have collateral. If you don’t make payments, the lender can’t take something of yours. However, they can still send you to collections and have debt collectors attempt to get payments from you. They can also sue you and get the courts to force you to make payment.
While there are unsecured loans for bad credit, including online loans, in some cases, you might be required to get a secured loan if you have bad credit. Often, though, online loans for bad credit are unsecured. Some lenders might require some type of collateral for an online loan, but many don’t.
What can loans for bad credit be used for?
Because these are considered personal loans, a loan for bad credit can be used for a variety of purposes. They can be used for:
- Financial emergencies, like car repairs, appliance replacement and medical bills
- Events, like weddings
- Moving costs
For the most part, as long as the money isn’t being used as a student loan or for some illegal purpose, it’s possible to use personal loans for just about anything. However, some experts recommend that you only use loans for bad credit for things that you need, like an emergency or to cover moving or living expenses for a short period of time.
What do I need to qualify for online loans with bad credit?
To get started, it’s important to understand what you need in order to qualify for a loan with bad credit. Every lender has its own requirements, so you might need to shop around. But, in general, you can expect that you will need the following if you’re going to get an online loan for bad credit:
- Identification: You need to show who you are. In many cases, to get an online loan, you will need to upload a picture of your driver’s license or some other form of government-issued ID. Often, a lender will ask for your Social Security number. The idea is that you need to show proof of who you are before the lender will provide you with funds. Additionally, the identification allows them to check your credit and view your credit history.
- Proof of income: Any time you borrow money, a lender wants to be reasonably sure you have the ability to pay the loan back over time. As a result, you usually have to show proof of income. For example, you might need to send over bank account statements that show regular deposits into your account. You might need to upload pictures of your pay stubs or send a copy of your tax return.
- Checking account: Many online lenders also require that you have a checking account. Many online lenders prefer to be able to directly withdraw payments from your bank rather than wait for you to send payment. Without a checking account, you might not qualify for an online loan with bad credit.
In many cases, online lenders will connect to your bank account to get information about how often you receive income and to verify that they can take your payments from the account.
How lenders connect to your bank account when you get an online loan
In order to qualify for an online loan with bad credit, you usually need to be prepared to allow the lender to connect to your bank account. Generally, they do this by using a third-party solution, like Plaid.
When you decide to apply, they’ll ask you to select your bank and then enter your login information. This is the same login information you use for online banking. Sometimes, you even receive a code to your phone or email to verify that you’re making this attempt.
The information on your bank account login isn’t stored, or even seen by the lender. Instead, your login information is turned into a data token. It’s just used to communicate with your bank and verify that you have an account and that there’s money in the account – or that you receive regular deposits from a job or some other type of income.
When you want to qualify for an online loan, you will likely need to use some type of bank verification to show that you have a checking account and income so that the lender can be reasonably assured that they will be able to automatically deduct your payments on a regular basis.
Do you need a cosigner to get a loan with bad credit?
In some cases, you might need a cosigner to get an online loan with bad credit. Some lenders have a qualifying requirement that you have someone else help guarantee the loan.
A cosigner is someone with good credit who agrees to take on payments if you are no longer able to. They become responsible for your loan. It might be difficult to find a cosigner, but there are some people who might be willing to help you. Usually, a cosigner needs to be a close family member or friend.
When you use a cosigner to qualify for an online loan with bad credit, they will need to go through a credit check. Their credit and income will be looked at, and they will be treated as if they are attempting to borrow the loan themself. Additionally, when someone looks at their credit report, it will be as if they have the debt—even if you’re the one making payments.
If you end up getting a cosigner, it’s important to make sure that you can still make payments on the loan, especially if you don’t want to potentially ruin your relationship with someone who cosigned for you.
How to get a loan with bad credit
Once you decide that you’re ready to apply for a loan with bad credit, it’s time to take steps to get your loan. Below are the steps to follow if you want to get the best possible deal for a loan.
Gather your documentation
The first step is to be ready with what you need to qualify. Gather your documentation in one place. Consider taking images of the front and back of your driver’s license or other government-issued ID so it’s ready. You don’t always have to submit an image of your ID, though. Sometimes just having the number is enough. Also, make sure you know your Social Security number since it will likely be needed.
Make sure you have your login info for your bank account handy. In some cases, you might need to provide a checking account number and a bank routing number. Look up your bank’s routing number ahead of time so that you’re ready. Know the bank account number, just in case.
Have your income information ready as well. Scan or take pictures of your latest pay stubs. Download and save recent bank statements. Consider getting a PDF version of your latest tax return. Having all of that information available can make the application process go smoother.
Finally, if you think you’ll need collateral, look for that documentation. You might need to submit information about your car and car title if you plan to use your car as collateral. If you have something else you plan to use, get the documentation for that. Every application goes faster when you have everything you need ready to go ahead of time.
Compare different lenders
Once you have your documentation, it’s time to start comparing lenders. Look online for different lenders and compare terms. Consider getting preapproved for loans.
Preapproval is a process where lenders take a look at your information and make a loan offer to you. They do this by what’s called a “soft credit pull” or “soft credit inquiry.” A soft credit pull takes a basic look at your credit history and credit score but doesn’t impact your score. This is important because hard credit inquiries can result in a slightly lower credit score. The more you apply for credit, the lower your score might be later.
When looking for an online loan, it can help to get different preapprovals so you can compare terms. Make sure you look at things like:
- Origination fees: This is a fee some lenders charge when they put together your loan. Some lenders don’t have them, but many lenders that offer online loans for bad credit charge them. They can be anywhere between 0.99% to 8.99% (or more) of your loan amount. Often, the fee is deducted from your funds. So, if you’re approved for a $4,000 loan, and the fee is 2.99%, your origination fee of $119.60 will be deducted from the funds and you’ll actually only receive $3,880.40.
- APR: Your annual percentage rate is how much the loan will cost you each year. It’s part of the interest charge you pay to borrow money. The higher the interest rate, the more you’ll repay over time. If you have a choice, getting a lower APR can be a way to reduce your overall cost.
- Repayment terms: Look at the payment terms the lender offers. Many lenders offer short-term loans of six to 12 months, while others might allow you to repay the loan over the course of three to five years. The longer the term, the lower your monthly payment will be. This can make repayment more manageable, but you’ll also probably pay more in interest over time. Also, review the intervals. Does the lender require you to make payments each week, or do you make a monthly payment?
Compare different offers to see which makes the most sense for your situation. Look for a combination of terms that works for you based on your circumstances, needs, and budget. One way to get multiple offers at once is to use a website that takes your information once, does a soft credit check, and then gives you multiple offers to compare. Then you can easily see what’s available.
Apply for the loan
After you’ve done your research, it’s time to apply for the loan. If you get a loan offer, you usually need to accept it within a couple of days, so it’s a good idea to spend some time to compare and make a decision relatively quickly.
When using an online website that compares different offers for you, you can usually quickly compare and then apply for the one that you think will work best for you. Then, you go through the application process.
This is where you might need to provide the documentation you gathered earlier. The final decision will be made after you finish the loan application. Your final amount and terms will be given once you complete the application.
- If approved for the loan: Electronically sign the documents to accept. As part of the process, you’ll have provided your bank account information. The funds will likely be deposited within one to three business days. Often, with online loans for bad credit, the money is directly deposited into your account.
- If the loan doesn’t go through: Find out if there is something else you can do to get the loan. You might need a cosigner or collateral. If the lender lets you try again with collateral or a cosigner, you might be able to get the loan in the end.
Benefits of getting an online loan for bad credit
Online loans for bad credit can have certain benefits and advantages, depending on the situation. Some of the benefits you might see when you get these loans include:
- Solve a financial emergency: If you’re in a tight spot and need cash fast, an online loan for bad credit can provide you with the funds you need quickly. This can help you resolve a financial emergency quickly. Even if you don’t have good credit, you can get the money you need to deal with a short-term problem.
- Convenience: An online loan is often more convenient than going to a bank or other lender. You can apply any time of the day or night without worrying about your work hours. Plus, the money is usually directly deposited into your account, so you don’t have to take the extra step of making a deposit with a check.
- Chance to build credit: Finally, you have the chance to potentially improve your credit when you get an online loan for bad credit. If the lender reports to one of the credit bureaus, your on-time payments can be used to improve your overall credit score. As long as you avoid more debt and you can make your payments, you might see an improvement in your score over time.
Potential pitfalls of online loans for bad credit
While there can be benefits to getting an online loan with bad credit, there are also some downsides to consider. First of all, bad credit loans often come with higher costs and smaller amounts, so they might not always fit your needs. Additionally, depending on the situation, the high costs can result in getting stuck in a debt cycle. Having a plan to pay off debt and try to avoid renewing can be one way to get past the pitfalls of online loans for bad credit.
Are online loans a good option for people with bad credit?
Depending on the situation, online loans can be a good option for people with bad credit. If someone has a financial emergency and is struggling to meet it, an online loan can provide fast funds to cover the gap. However, it’s important to understand the costs and potential pitfalls of getting a loan with bad credit.
What if I am denied an online loan for bad credit?
Even though bad credit loans are designed for those with poor credit, it’s still possible to be denied. If you’re denied, you can find out if it’s possible to get the loan by some other method, such as providing collateral or by getting a cosigner. In that case, the lender might reconsider. If you still can’t get a loan, you might need to look for other ways to get the funds you need. You might need to get another job, ask friends and family for help, or see if there is some other way to cover your needs.
What are the advantages of applying for online personal loans for bad credit?
Depending on the situation, applying for online personal loans with bad credit can have various advantages. For those with bad credit, they can see an improvement if they make regular, on-time payments on their loans. Additionally, it might be a way to consolidate debt. Another advantage is that it can be fast and convenient to get money for an emergency. Carefully consider the advantages and the disadvantages before deciding to apply for a loan with bad credit.
The bottom line
If you need a loan and you have bad credit, it’s possible to get the financing you need. Online loans for bad credit offer a fast and convenient way to apply for funds, and these lenders are used to working with people who have poor credit. As long as you have income and a checking account, you might be able to get the funds you need. Just be aware of the costs involved and understand the requirements before you apply.