Second Chance Loans for Bad Credit

(Updated 3/10/2017)

With the economy being what it is, a lot of people who once had good to excellent credit are facing the fact that they are now considered high risk.  Some people feel the best way to deal with a low credit score is to pay off as much of their debt as possible and go to their local bank and ask them for a loan, hoping they will disregard the low credit score and look at their current circumstances.


While paying down all existing debt is a good idea, unfortunately a lot of  the big banks (like bofa or citibank) have a strict credit criteria and won’t be able to help you until your credit score improves.

If you belong to a community bank or credit union.  You should make an appointment to meet with the credit manager and see if they might be able to help you.  I’ve found that smaller banks that serve just their small community are a bit more lenient.  Its import to show them that you are now capable of paying off your debt on time.

At this point your probably thinking ok, well  I don’t belong to a community bank or credit union. So what do I do?  That’s where a second chance lender (sub prime lender) will step in.

Second Chance Loans for Bad Credit

Sub prime lenders are lending institutions that specialize in providing consumers with bad credit loans.  Their rates do tend to be higher then your local bank, but that is because the risk they take is considered higher. Depending on what type of financing you are applying for, you may be able to negotiate with the lender and see if you can get a lower rate.

Who Should Ask For  A Lower Rate

Its not a guarantee that you will get a lower rate, but if you fit the following criteria, you have a better chance of getting a lower rate.

  • Your current credit report shows that you have been making ALL your payments on time for a year or more
  • No liens or bankruptcy on your credit report
  • Bankruptcies should be discharged at least 3 years
  • Started to rebuild GOOD credit after a bankruptcies
  • You have additional collateral that you are willing to use to secure the loan

If you don’t meet the above criteria, its unlikely that your request for a lower interest rate will be successful.  But don’t let that stop you from applying.  Just understand the interest rate will be higher than normal.  So you should consider taking the loan out for a shorter amount of time.

When I’m working with a start up business or a bad credit borrower,  I always explain to them it will be in their best interest to take the loan for a shorter time period.  Instead of 48 months, if they can afford it they should do 36.  If they can’t afford it, they should see if there is a pre-payment penalty.  If there isn’t a prepayment penalty they should make bigger payments then required to pay the debt off faster.

Meanwhile they continue to work on their credit so that the next time they need a loan or line of credit, they won’t need to look for a subprime lender.

Prove Your Credit Worthiness

As a credit analyst of over 20 years, I can’t tell you how many times people say to me if you give me a chance, THIS TIME, I won’t mess up. Actions speak louder than words.  A credit report that shows me consistent payments.  A credit report that shows me they are paying down debt.  Pay stubs showing consistent employment and an ability to pay.  Those are the things that make me feel a loan may not be as high risk as the credit score leads me to believe.

Tip: Be in the job at least 6 months before applying for your loan.  The longer the better. 

Aside from paying off your debt to your creditors, another important step to getting approved for a bad credit loan is finding the right lender.

How To Find The Right Lender

Doing a search online is a quick and easy process.  Look for subprime lender, subprime loans, and bad credit loans.  Then read the fine print!  There are lots of companies saying they will give personal loans to people with bad credit, but the criteria differs greatly depending on the lender.

Keeping all this in mind, borrowers should remember that second chance loans are best only for short term financial needs. They should keep working on improving their credit so that the next time they need financing they can make lenders fight over the opportunity to work with you and offer you the best rates possible!

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Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 24+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

  1. The interest rate depends upon the dealer and you—your credit history and FICO score, your employment, etc. The better your history, the lower your interest rate will be.

    It also depends upon the state. There are different maximum interest rates for different states.

  2. Identity fraud is one of the fastest growing problem in America today. Every four seconds someone’s identity is stolen.There are now several identity theft prevention services on the market to address this problem. The question now becomes which id theft protection provider is right for you.

    You might also want to consider a credit report monitoring service to provide you another layer of protection that many id theft protection services don’t always provide. Many of these credit monitoring services offer a free trial where you’re able to receive your free credit report

    • Hi Vic,

      Thanks for visiting the site! You are right, a lot of people with bad credit dont’ utilize a credit monitoring service since they know their credit is bad and can’t imagine anyone stealing it.

      Unfortunately no one is safe from ID theft. Not only can your credit be used to get a credit card or loan, but get a job, find housing or just to try to sign up for government financial aide programs.

      Everyone needs a credit monitoring service. Whether you have good credit or bad.

      Thanks for your input and I hope you feel free to leave more comments on our site!

  3. A warm greeting to everybody! Hello to all,i am a new member of this forum and hope to have a good experience here

  4. Bad Credit is of course hard to erase so always maintain a good credit record.:*

    • Hi, that’s easier said then done. Bad credit isn’t only caused by mismanagement of money. A lot of times it starts with an unexpected health issue that causes someone to fall behind in their payments, and just snowballs after that.

      Thanks for visiting!

  5. What would I need to do if my ex took out one of these loans in my name?

  6. So is it best to pay off debt then try to get a loan or is it okay to get one of these loans while still paying off your debt?

    • Hi David,

      You should pay down your debt. After you pay down the debt, wait 30 – 60 days until it appears on your credit report before you apply. Even bad credit lenders will decline people who have too much debt. They want to get their money back, and they don’t want to have to “chase” the applicant. Taking clients to a collection agency is expensive! They would rather decline a deal that looks like the client has more debt than income. Good luck!

  7. Hi Hanahbr,

    thanks for visiting the site and sharing our content!

    Its appreciated!

  8. Having bad credit is a problem that nobody wants or needs to have. It is frustrating and can cost you a lot of money. This article will help you to understand the basics behind improving your credit scores and self credit repair accept credit cards

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