Key Considerations and Tips for Obtaining a Personal Loan with Bad Credit
Having bad credit can make obtaining a personal loan challenging. Still, it’s not impossible—primarily when you work with lenders like People Driven Credit Union (PDCU) that prioritize helping members improve their financial well-being. If you need a personal loan but are concerned about your credit score, there are key considerations and tips you should keep in mind to boost your chances of approval and secure better loan terms.
1. Understand Your Credit Score
Before applying for a personal loan, knowing where your credit stands is essential. Bad credit is typically defined as a FICO score under 580, but each lender has its own criteria. You can better assess your situation and prepare for your loan application by checking your credit score. You may also find errors or inaccuracies in your credit report that you can dispute, potentially boosting your score before you apply.
Tip: People Driven Credit Union members have free access to their credit score and reports anytime with the MyPDCU app. Take advantage of this to check for any inaccuracies!
2. Consider a Secured Loan
One way to improve your chances of getting approved for a personal loan with bad credit is by opting for a secured loan. Secured loans, such as a CD Secured Loan or a Share Secured Loan, use your savings or certificate of deposit (CD) as collateral. Since this reduces the lender’s risk, you may be more likely to qualify, even with a lower credit score, and secure better interest rates than an unsecured loan.
Tip: With secured loans, your collateral remains safe while you repay the loan, and timely payments can help improve your credit score.
3. Apply for a Smaller Loan Amount
Lenders may be more willing to approve smaller loan amounts for borrowers with bad credit. By borrowing only what you need and demonstrating that you can repay it, you lower the lender’s risk and increase your chances of getting approved.
Tip: If possible, build your credit score by repaying smaller loans over time before applying for larger ones.
4. Look for Credit Union Options
Unlike traditional banks, credit unions like PDCU tend to be more flexible with loan approvals and offer better rates. As a member-focused financial institution, PDCU looks beyond your credit score and considers your overall financial situation. This means you may be able to qualify for a personal loan even with less-than-perfect credit.
Tip: If you’re not a member yet, consider joining People Driven Credit Union, which offers personalized support and member-centric loan programs.
5. Provide Proof of Income
Even if your credit score is low, lenders are often more willing to approve a loan if you have a stable income and can show that you can repay the loan. This could include pay stubs, tax returns, or other proof of income.
Tip: Gather your financial documents in advance to streamline the loan application process and demonstrate your ability to manage repayment.
6. Consider a Co-Signer
If you have bad credit, adding a co-signer with a more robust credit profile to your loan application can improve your chances of approval. A co-signer agrees to take responsibility for the loan if you default, reducing the lender’s risk.
Tip: Make sure your co-signer understands their responsibilities, as any missed payments will affect their credit and yours.
7. Be Prepared for Higher Interest Rates
You may face higher interest rates with bad credit than someone with a higher credit score. However, PDCU offers competitive rates and flexible loan options, even for members with bad credit.
Tip: If possible, repay your loan early or make extra payments to reduce the interest you pay over time.
8. Enroll in AutoPay for a Rate Discount
One of the best ways to lower your APR for an Unsecured Personal Loan from People Driven Credit Union is by enrolling in PDCU’s AutoPay service. This Special Loan Rate Discount can lower your APR by 0.25% if you set up AutoPay from a PDCU checking or savings account and have Direct Deposit of payroll, social security, or retirement income. This can be a simple way to save money over the life of your loan.
Tip: Set up AutoPay right when you take out the loan to maximize your savings.
9. Focus on Improving Your Credit Over Time
While bad credit may limit your options in the short term, you can take steps to improve your credit score for future loan applications. Paying off current debts, reducing your credit card balances, and making consistent, on-time payments can all help you rebuild your credit.
Tip: Consider using PDCU’s Credit Builder Loan to help you improve your credit while establishing a savings account. This can serve as a stepping stone to better loan terms in the future.
Talk to an Expert About Obtaining a Personal Loan with Bad Credit
Securing a personal loan with bad credit may require more preparation, but it’s undoubtedly achievable—especially with the support of a member-first lender like PDCU. By following these tips, you can improve your chances of approval, qualify for better terms, and take steps toward improving your overall financial health. If you’re ready to explore your loan options, PDCU is here to help. Reach out to one of our loan specialists today to discuss your needs and find the best solution for your financial situation.
