Bad Credit? No Problem. Here is How to Get a Personal Loan When You Have Bad Credit
There are many people who have bad credit but need a personal loan. If you have ever had bad credit and tried to obtain a personal loan. You know you are in for quite the ordeal.
But there is a way to obtain a personal loan even when you have bad credit. It’s by obtaining a co-signer. A co-signer is usually a friend or relative who agrees to make the payments if you fail to do so.
A co-signer will allow the borrower to borrow money from a bank and help establish a history of on-time payments for the borrower.
Finding a co-signer is easier said than done. There is a lot of risks involved in being a co-signer for someone. They not only have to take over the payments, but their credit is at risk until you pay off the debt.
Finding a good co-signer to get approved for a personal loan
Your co-signer must have good to excellent ESTABLISHED (5 years or more credit history). They should also have comparable credit to the loan amount you are applying for. Let’s say you need a personal loan of $15,000. A personal loan is very hard to get for someone with bad credit. There is no collateral for the bank to repossess if you don’t pay.
So how can you get approved for this type of loan with a co-signer?
For example, a BAD co-signer is one with a credit score of 750, 1 trade line of $500, and 1 year of history.
A good co-signer for a personal loan would be:
A person with a 750 credit score, 5 or more trade lines, and at least one trade line that is $15,000. They will have an established history of on-time payments for all their trade lines.
The Risk Associated With Being A Co-signer For A Loan
When you are a co-signer you are putting your credit and finances at risk. If the person you co-sign for defaults not only will the banks look to the cosigner to make the payments, but they may sue the co-signer.
Each time the loan is paid late, the co-signers credit will also reflect a late payment.
As a co-signer, you may find it harder to obtain new credit for yourself. The lenders will see the co-signed loan as your own debt obligation. They may say you have too much debt to take on a new loan or credit card
As a co-signer, you need to keep an eye on the co-signed loan. If you notice some risky behavior on the part of the person you co-signed for. You will find that you will not be able to take your name off the loan. The only way to do it is to have the loan refinanced. And the person you co-signed for will have to qualify for the loan on their own. Or find someone else willing to co-sign on a new loan.
Taking The Risk Out Of Co-Signing
The reasons above are the reasons why its so hard to find a co-signer. If you have co-signed a loan or a credit card, then you know it’s not going to be easy to find someone who will take on the responsibility. You are basically asking someone to not just put their credit on the line, but their finances.
You need to provide them with some security that you will always make the payments. And if you can’t make the payment on time. You will notify them so they can step in and protect their credit.
So how do you make it less risky for your cosigner? Here are a few things you can do
1. Pay on Time – Set up a joint account where the monthly payment will come out of. And then set up an automatic payment from your account to the joint account so that they know there is always money in the account to pay for the debt.
Why not just set up an automatic payment from your account to the loan? Peace of mind. Your co-signer will be able to see at any time that there is money in the account to pay the loan. And if they see there isn’t, they can contact you to move money into the account before a late payment occurs.
Offer them something as collateral. You can offer them the title to your car, or make them a signer on an investment account. That way they know if you fail to pay they can repossess your car or access the investment account. This may sound risky to you. But think about the risk your co-signer is taking by signing for the loan.
Being a co-signer is really risky. You need to make it worth their while in order to do something like this. You also have to show that you are financially responsible to make the payments and make it a priority.