Thousands upon thousands of people each day hope that they can take out these loans. The credit scores of these people of course varies wildly. For individuals that have solid credit and ample income, taking out a signature loan is very simple. For those who lack either a solid credit history or income, these loans are difficult to qualify for.

The Truth About Bad Credit Signature Loans

The honest truth is that these loans don’t really exist for people that have bad credit. At least, they don’t really exist for people whose credit score is below 600 (some institutions may provide loans for scores dipping to the 550 range, depending on the actual items in the credit history). Some people may believe that they have bad credit but can still qualify because their score is in the 620+ range.

While there are a few alternatives to signature loans, we should never lead people to believe that they can take out a loan of this type with bad credit. It simply doesn’t make sense to any lender to loan money to people that don’t pay their bills.

Why Banks Can’t Loan Money To People With Bad Credit

It doesn’t make sense for a bank to loan money to those whose credit scores are below 600 because they have shown a severe lack of financial control. They generally either have a ton of late payments or they are using their credit cards poorly. As you use more and more of your available credit, your credit score is affected adversely.

It makes absolutely no sense to lend money to a person in this position for two primary reasons:

• Either way, they have clearly shown that their finances aren’t under control. People don’t max out their credit cards for no reason and they don’t make late payments for no reason.
• Opportunity cost. Many banks don’t have unlimited funds and therefore need to make their loan decisions wisely. Loaning to individuals with solid credit history makes the most sense.

Why Some Lenders Specialize In Bad Credit Loans

There are definitely many lenders in the U.S. that specialize in lending money to individuals with poor credit. This happens because these institutions are able to charge more interest to these individuals. This of course changes the business model drastically. These loans generally happen when people are buying homes and/or vehicles so that the lending institutions have their collateral. The change in model is that the bank will have to seize homes and vehicles quite often to recoup the damages caused by lack of payment. These lenders try to gauge who will be the best risk so that they can minimize the damage.

We of course know that many of these ‘subprime’ lenders went out of business during the credit crunch of the last few years.

How To Prepare Yourself To Take Out A Signature Loan

I’ve said this a million times before on this site, but the process is actually quite simple. Stop paying your bill late. Never again make a late payment on a bill – especially on a credit card bill. Late payments kill your credit score and make you look terrible to a bank.

Open at least two credit accounts. If you don’t have credit cards, get some. If you can’t qualify for a regular card, get a secured credit card. Make each payment on time. You should spend very little on your credit cards while trying to get limits that are as large as possible.

Stop spending money that you don’t have. Exercise financial control.

You will generally see that banks will respond before your credit score does. If they can see a bunch of on-time payments back t0 back, they will start to trust that you will make your payments to them on time. If all that they can see is a poor history, they won’t loan you money.

Alternatives To Signature Loans

I almost hate to bring up these types of loans, because their terms aren’t that great. Generally speaking, people who take out these types of loans simply hurt their finances. However, there are a few options.

1. Personal loans/Cash advances/Payday loans

These loans are of course ridiculously expensive and often have interest rates over 1000%, APR.

2. Payroll loans/ Business POS loans

These loans are also generally quite expensive but are useful in some situations. They are technically a cash advance, like a payday loan, and are offered to individuals who run a lot of volume through their monthly credit card machines.

If you want my advice, fix your credit so that you can take out reasonable loans in the future.

When you go into a bank to apply for bad credit signature loans, you usually won’t have a ton of luck unless you have an extraordinary income. If your income is high and your credit is bad, the bank will sometimes offer you bad credit personal signature loans because they can honestly make bank from the ridiculous interest they’ll charge you.

If you take out this type of loan, you can plan on paying at least 15% interest and that’s a LOT of interest. Since most people don’t want to pay interest at that level, they opt for a different approach.

Signature loans for bad credit are the wrong way to go if you have any valuable assets. If you have a home with some equity or a paid-off car, you can get a better loan with a more desirable interest rate. As asset gives the bank a backup plan and that really helps your cause. While getting signature loans with bad credit is very difficult, getting a home equity loan with bad credit isn’t nearly as hard.

If you don’t have tons of options or if you have already been denied when applying for bad credit signature loans, you should seriously consider finding a cosigner. This will reduce the risk for the bank and if you’re serious about paying back the loan this can really help you out. Even if you give the cosigner a small monthly payment, it will save you boat-loads over what you would pay out at 15% interest.

Your last option really is to wait until you can improve your credit history. If you have bad credit you already know that it follows you around everywhere you go. This can become a huge pain eventually and at some point you need to get it fixed. You won’t be looking for bad credit signature loans once you get your credit score over 720. At that point anyone will give you a signature loan as long as you have a job.

You would be amazed at how quickly you can get your credit turned around if you will simply focus on it. If you clean up a few mishaps and make on-time payments on your credit cards for even a year, your score will increase significantly.

The bottom line here is that you need to refocus your energy. People spend a TON of energy trying to find sophisticated loans and if they could refocus that energy into improving their credit, good things would happen. I often see many many people trying to take out impossible loans like no credit check home loans – these loans don’t exist. Take control of your credit today and you’ll be able to get any loan you want to get tomorrow.