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Getting a Loan with Bad Credit

[Apr 17, 2010.]


If you have bad credit, it can be tough to qualify for a personal loan. If you don't have the best credit score, banks may be unwilling to risk lending money. When lenders do OK a loan even though you have bad credit, usually you pay very high interest rates.

Take a Hard Look at Your Finances

Before applying for a personal loan, scrutinize your finances to find areas needing improvement. If you have bad credit, something needs to change. That change could be cutting up credit cards, putting together a budget and actually following it, or finding an additional source of income. Maybe you were laid off and ended up with bad credit because you couldn't pay all your bills.

Whatever the situation, you must put together a workable financial plan that isn't dependent upon getting a personal loan. If your finances are in poor shape, a loan can only go so far to help you. In fact, borrowing money if you already have serious money problems is likely to make things worse.

When Borrowing Money Might Help

So what if you have bad credit and have already made significant changes to turn your financial situation around? Are there times when borrowing money could actually help improve things? Maybe. Here are some situations where getting a loan could make sense:

  • You paid off some debt but still owe money to several creditors. You might qualify for a debt consolidation loan that allows you to combine the remaining debt to have a lower interest rate and one payment.

  • You have found steady employment but can't get there without a car. If you have no savings, you may need a car loan, but be careful about lining up financing from an auto dealer. They often get you to focus on monthly payments rather than the actual price of a car so they can get more interest over the life of a loan. Shop around at credit unions and community banks to find competitive rates. Consider sticking with a small loan for a used car instead of taking on big payments for a new vehicle.

  • You need to borrow money to go back to school to improve your career prospects. You can probably qualify for a federal student loan to help pay education expenses. Private student loans may be tougher to get if you have bad credit, but go ahead and apply to see if you qualify.

Borrowing money should not be your first move if you are dealing with financial problems. Examine your situation carefully to decide if getting a personal loan would help more than it would hurt.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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