All About Finances

Personal loans are becoming an increasingly rare type of loan, particularly as banks have been running into trouble with their more profitable standbys like credit cards and mortgages.  Even for people with very high credit, banks have been extremely hesitant to issue unsecured personal loans, and personal loans for people with bad credit can seem impossible to obtain. To understand why, simply put yourself in the place of a bank:  would you rather make mortgage and auto loans, which are tied to collateral, or personal loans which are all but unrecoverable in the event of a default?  Even credit cards are infinitely preferable to banks, as they are able to make money on card fees, higher standard interest rates, do not have to issue money up front, and are able to track the spending habits of customers.

Since this is the case, it is, to be frank, unlikely that you will be able to get a personal loan if you have poor credit or insufficient income.  However, there are a few things you can do to significantly increase the chances of receiving one:

Bank locally

It is something of a well hidden secret in the world of personal finance, but you should always get checking and savings accounts and credit cards from local banks or credit unions rather than large multi-national organizations.  Not only will you get much better customer service (at the cost of things like 24 hour call centers based in India), but you will be able to build a relationship with the people who make up the organization, who are ultimately the people that decide whether you receive a loan.  You are astronomically more likely to receive an irregular loan such as a personal loan through a local bank with whom you have a relationship than a national bank.  A local bank will still check your credit, but they are much more willing to overlook a poor credit report or let you explain some of the factors leading to your poor credit score.

Offer up collateral

If you’re seeking a personal loan, you significantly increase your chances of receiving it if you can put down a deposit.  This is another advantage to banking locally.  While your local bank isn’t in the pawn shop business, they are much more likely to accept irregular forms of collateral like valuable musical instruments or jewelry than a national bank.  Some amount of money, counter-intuitive as it may seem, can also act as collateral for your loan.

Always work on improving your credit

Secured credit cards and secured personal loans are amazing ways to boost your credit score.  You can use the proceeds from one secured loan to fund another secured loan.  You will have to pay a small amount of interest on these loans, but they are reported to the credit bureaus as if they are real loans.  If you have some spare cash lying around, it would behoove you to get started improving your credit today.  Having a positive credit history significantly increases the chances you will receive a bad credit personal loan.

One last mention:  Debt consolidation loans are one example of personal loans that are issued more freely than others.  If you have bad credit and are seeking to consolidate your debt, you may wish to go through a consolidation firm rather than seek a plain personal loan.

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