Your credit score is one of the most important factors when applying for a loan. If you are considering applying for a loan and your credit score is below 650, you might be wondering if you can get approved.
In this guide, we’ll take a look at how a low credit score affects your chances of getting a loan. You will also learn how to get the best deal on a loan at any credit score and how to make approval more likely.
Can You Get A Loan If Your Credit Score Is Below 650?
You can get a loan with a credit score of less than 650. Typically, the credit score you need for a personal loan is 550 or higher. It depends on the lender because each has their own minimum requirements. Also, keep in mind that lenders tend to offer smaller loans and charge higher interest rates to borrowers with lower credit scores.
How To Get A Loan With A Credit Score Below 650
Here is the process for getting a loan with a credit score below 650:
- Check your credit score.
- Look for lenders with a minimum credit score that you can meet.
- Compare the loan rates between the lenders that you find.
To get started, find out your credit score. Specifically, find your FICO® score, the one most widely used by lenders. There are several free credit score tools that provide your FICO® score, including:
The next step is to find potential lenders who match your credit score. A good place to start is with the best personal loans for fair credit. Fair credit includes scores from 580 to 669 according to the FICO® scoring system. If your score is near the low end or below that range, consider bad credit personal loans.
Once you have the lenders, it is time to go shopping for rates. Most lenders have a prequalification option on their websites. Once you have entered some basic information, the lender performs a gentle credit check on you, which does not affect your credit score. It then tells you the loan amount and the interest rate for which you are prequalified.
Use the loan amounts and interest rates offered to choose a lender. After choosing one, apply for a loan.
Other Ways To Get A Loan With A Low Credit Score
There are other loan options that may work better depending on your situation.
Get a co-signer
Some lenders allow you to apply for personal loans with a co-signer. A co-signer is another person who agrees to be responsible for your loan.
If you know someone with a higher credit score than you who is willing to co-sign your loan, this could help you get better loan terms. The lender uses the credit of the co-signer to determine the interest rate and the amount they can offer.
Check with your bank or credit union
If you have a relationship with a bank or credit union, they may be willing to give you a personal loan with no credit or with a low credit rating.
They have a better idea of your financial situation than a lender you’ve never used before. If they see that you have a steady income and are managing your money well, this could be your ticket to your loan.
Provide collateral for a secured loan
Personal loans are generally unsecured loans, which means that the lender has nothing to take back in the event the borrower defaults. But it is possible to obtain a personal loan with collateral. This can facilitate approval.
When you provide collateral for your loan, it is a secured loan. Most valuables that can be professionally appraised are an option to use as collateral. Common warranty choices include:
- Real estate
- Bank accounts
- Investment accounts
Save money on your loan
A good rule of thumb with personal loans is not to borrow more than you need to. This is even more important when you have a low credit score, due to the higher interest rates. First determine how much money you need. And then only borrow that amount, even if the lender offers you more.
The length of your loan is also important. A longer loan term means lower monthly payments, but also comes with higher interest charges. Choose the shortest term that works for you, so you can minimize interest without having trouble making your payments.
If you choose the lowest loan amount and the shortest term that you can handle, your loan will not be more expensive than it needs to be. It may cost you interest, but you will have the money you need and it may even improve your credit as you pay off the loan.