How to Get a Personal Loan with Bad Credit

Life doesn’t always go as expected, and if you have a financial emergency, a personal loan can be the only way to tide things over. It could be a medical emergency, an unexpected home repair, or you need to pay off another loan. And you’re not alone. Over 19 million Americans have a personal loan, with an average debt of $8,400. Personal loans are perceived as less risky as you don’t have to put up your home or car as collateral.

However, you might find it more challenging to get a loan if you have bad credit. A low credit score can pose a considerable obstacle for many people. But that doesn’t mean that it’s impossible to get a loan. If you live in Salt Lake City, bad credit personal loans are available for people who need immediate access to cash. Before you apply, here are a few things you need to know:


  • Your credit score affects the cost of borrowinG


Banks and lenders look at your credit score to determine your financial history, activity, and whether or not you pay your debts on time. Generally, the better your credit score, the lower the interest rate you’ll receive. 

If you have poor credit, you might pay more in interest. But don’t assume that you’ll be automatically rejected for a loan. Compare rates between multiple lenders so you’ll have an idea of how much you’ll need to pay and for how long.


  • Update your credit score


Credit bureaus update your score as soon as it receives new information from financial institutions regarding your activity. If you know you have poor credit, but don’t know how bad, you need to check your credit score. Under FICO guidelines, a score under 579 is considered bad.

You need an idea of your credit score before you can apply for a loan. Check online for companies that offer a free credit report.


  • Check your debt-to-income ratio


Lenders also look at your debt-to-income ratio (DTI) to determine whether to approve your loan application. Your DTI measures your debt against your income. The calculation of your DTI is simple. Add all your monthly debt payments (credit card payments, student loans, auto loans, etc.) and divide that by your gross monthly income.

The lower your DTI, the better. The ideal DTI is 35% or lower. It means that lenders prefer that no more than 35% of your income is used for paying your debt.


  • Choose your lender


If you’re looking for personal loans for bad credit, you have three options: banks, credit unions, and online lenders. Banks have the strictest lending requirements and might require collateral if you fall below a particular credit score. 

Credit unions are an excellent alternative for people with bad credit. They tend to be more flexible in their arrangements, and interest rates are capped by law. Finally, online lenders provide the most flexibility. People with reduced scores can get approved if they have a good income. If you can prove that you can pay your bills on time, you can get approved even with a low credit rating.


These are just some of the things you must do before applying for a personal loan. Work on improving your credit score, and you’ll pay less in interest down the line.