Getting a loan is your best option if you lack the funds when buying big-ticket things, such as a house or a car. The process of getting a loan is relatively straightforward since all you need to do is to prepare the necessary documents, go to a lender to apply, and wait for your approval. However, one factor that can tip the scales is your credit score.
For lenders, the credit score is crucial because it’s the defining factor of whether or not you’ll be able to pay the loan back. Credit scores vary depending on the scoring model, but the consensus is that anything above 580 is enough to get your loan application approved.
What about if it’s lower than 580, like 550? Can you get a personal loan with that credit score? This article will shed some light on the matter. Read on below to learn more.
The 550 Credit Score
There’s no other way to say it, but a credit score of 550 puts you in the ‘very poor’ range, which goes from 300 to 579. 550 may be on the higher end of the range, but it’s still considered a low credit score.
Many factors can negatively affect your credit score, the most common of which are unpaid debts or records of bankruptcies. They often go away with time, but the heavier penalties can stay on your credit reports for up to 7 years.
The fact of the matter is that you can still qualify for some types of loans with a 550 credit score. However, personal loans are considered ‘unsecured,’ which means that the lender gives you the loan based solely on your word that you’ll repay your loan.
Borrowers with a credit score of 550 are considered more likely to miss payments, which is why lenders charge higher to them to minimize the risks on their part.
How to Get a Personal Loan with a 550 Credit Score
Realistically speaking, your options are pretty limited, with a 550 credit score. The good news is that some lenders specifically work with borrowers who have poor credit scores.
Your best course of action would be to look in the following places:
1. Credit Unions
Credit unions are nonprofit financial institutions that assist their members who have accounts at a credit union. Unlike traditional banks or lending institutions, credit unions give a lot of leeway to their members.
Being a part of a credit union is pretty easy because you can join one depending on where you live or work. You can also become a member by donating.
2. Community Banks
Like credit unions, community banks have different loan options, even for poor credit borrowers. If you’ve worked with them before, there’s also a chance they may give you leeway when it comes to your option of choice.
3. Online Lenders
Many online lenders approve loans to poor credit borrowers. You can also be prequalified, which doesn’t affect your credit score.
Other Loan Options
There are also other loans that you should only use as a last resort, but you should avoid them altogether because of their higher interest rates. These include:
Lines of credit
A title loan is riskier because it involves using your vehicle as collateral to get a loan. If you don’t make the repayment, your vehicle will be repossessed by your lender.
Alternatives to Personal Loans
If you must get a personal loan, then there are many alternatives you can choose from. These include:
1. Credit Cards
It’s no secret that credit cards usually have high-interest rates, but there are times when the annual percentage rate (APR) will be lower than what you’ll receive with a high-rate personal loan. If you have a credit card with a temporary 0% APR offer, it’s a good idea to use it to pay for a loan before the interest rate offer ends.
2. Paycheck Advances
Some companies can let you take out a payroll advance on your next paycheck. What’s even better is that it doesn’t have the high rates that payday loan lenders usually charge.
3. Debt Management Plans
Debt management plans are a massive help if you’re struggling with credit card debt. If you work with a credit counseling agency, they will get fee waivers and lower your monthly payments, which helps give you a little breathing room. Unfortunately, you may need to close your credit card account if you do this.
4. Financial Assistance Programs
If you qualify for government or non-profit financial assistance programs, go for it. They may not offer you actual cash assistance, but they can help with lowering your expenses.
5. Family and Friends
If you need to pay for a one-time bill, getting a small loan from family and friends is a good option. Just make sure that you pay them, as unpaid debts between family members could turn a loving relationship into a sour one.
A credit score of 550 can still get you a loan, but you’re most likely to have higher interest rates and repayments. The important thing is that you need to have the means to repay the loan, or else you may not apply for another loan in the future.
Hometown Finance provides personal loans for bad credit in Murfreesboro. We understand our clients’ financial situations, which is why we take it upon ourselves to make things easier for them. With our assistance, we help them secure loans to get them closer to a better life. Contact us today to learn more!