The spread of the virus and the various measures being taken to curb it have disrupted American lives considerably.
Companies across the country are being forced to lay off or furlough workers just to keep their heads above water. According to the U.S. Department of Labor, Since the middle of March, Americans have filed more than 30 million claims for their first week of unemployment benefits, sparking a crisis of joblessness that materialized almost overnight.
And while the federal government has passed economic relief bills totaling more than $2 trillion to help Americans financially during this crisis, it’ll be a stressful time ahead for many.
If you want to get a loan, but you have poor credit or no credit, you’re going to be climbing a very high wall. Lenders look at you as a high-risk customer who is likely to default on the loan and leave them holding an empty bag. You’ve got to accept it: until you raise your credit score, you won’t measure up to the standard lending guidelines that traditional banks and lenders rigidly stick to.
But there’s hope. If lenders have given you the thumbs down or if you don’t want to grip the knife’s edge by paying an oppressive subprime interest rate, here are some options:
Get a Co-Signer
A lender might approve you for an unsecured loan if you have bad credit only because you have a qualified co-signer. That person will apply for the loan with you and will guarantee to repay the loan in case you are not able to. The lender will accept the co-signer only if he has good credit and adequate income to pay off your loan.
It may sound simple enough, but in the mind of the co-signer, he’s taking a considerable risk. Not only would they be guaranteeing your debt, but they’ll also give up their privilege to borrow as much for themselves. When they co-sign your loan, they will also be 100% responsible for it even if you’re the one who is going to use the proceeds and be the one to repay it.
Get a Peer-to-Peer Loan
You may not have heard about it, but peer-to-peer lending or P2P lending has been active since 2005. It’s an online platform that facilitates lending to borrowers directly from individual lenders instead of from a bank or an institution. P2P has become extremely popular because it simplifies the entire process.
The borrowers can easily find a loan with low-interest rates, and investors can find a borrower for their funds who can give a higher interest rate than other instruments. Presently, credits go for as little as 6% per annum, but investors can sometimes earn an average return in double digits. It’s a win-win situation for both borrowers and investors.
The process is easy. Borrowers post a loan listing that states the amount they need and why they need a loan. Investors look through the loan listings and pick the ones that conform to their criteria. After a few administrative details, the platform releases the credit to the borrower.
Peer-to-peer sites screen all applicants and check their credit, which they include in your loan listing. While your credit score still comes into play, an individual investor may have his guidelines that are entirely different from the emotionless standards of a traditional bank.
Some of the P2P lending sites you can try to borrow from or invest in are Prosper, Lending Club, and SoFi.
Get a Secured Loan
Assuming that you have built up enough equity in your home, you can apply for a home equity loan or a home equity line of credit or HELOC. Your home equity is simply the market value of your home minus the balance of your mortgage. If you use your home as collateral, you can get a home equity loan no matter what your credit score is. You will also get a lower interest rate because your home acts as security for the loan. Plus, whatever interest you pay on a home equity loan usually is tax-deductible.
In a home equity loan, you get your proceeds in a lump sum of cash. A HELOC functions like any other credit account. You draw money when you need it without exceeding your credit limit and pay it back according to a schedule that the lender will predetermine. The important thing is not to forget in both cases is that your property secures your loan.
When you don’t or can’t pay back your loan, you put your property in peril. But if you are a responsible borrower and you have a steady source of income, there’s no cause for worry. You’ll have a less costly way to obtain financing from a reputable lender even if you have bad credit.
Baruch Silvermann is a personal finance expert, investor for more than 15 years, digital marketer, and founder of The Smart Investor. But above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
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