How to Get Bank Loans When You Have Bad Credit

Bank loans with bad credit are hard to secure because banks have high loan standards. These standards are partially set by the Federal Deposit Insurance Company, the organization that insures bank deposits.

If a bank practices poor standards, the FDIC may no longer provide insurance. Also, bank lenders often carry status as an FHA- or SBA-approved lender, meaning they have to follow requirements provided by additional federal organizations in order to make their loans. Those requirements set explicit credit standards.

If you do not meet the standard, you will have to work harder to find acceptance of your application.

Work with Lenders Known to You

Lenders who you know personally will be more likely to make exceptions when extending you a loan. For example, you may have a bank you have held an account with for 5 or more years. In fact, you may hold a checking account, savings account and credit card account with the same bank. Your accounts may have a high average balance. This information can be used to show you are responsible with your finances despite what your credit score may say. This is particularly easier to prove if you make standard contributions to your savings account or pay your credit card bill in full each month on time.

Prepare Thoughtful Applications

Your loan application, like your job application, gives insight to who you are as a person. The lender will want to see you are detail-oriented, responsible and organized. Any gaps in your application could indicate you are not prepared for the responsibility of a loan. This is an easy issue to fix. Simply ensure every question is sufficiently answered and you provide all supplemental materials up front. For example, if your lender requires proof of income, make sure you include this with your application documents.

Negotiate with Terms

The terms of your loan will partly affect how desirable it is to you and the lender. Good credit borrowers will have the ability to select favorable terms. You, on the other hand, will not have the same negotiating power. This can work to your favor, however. When you approach the bank, acknowledge your credit short-coming, and offer to accept less favorable terms to deal with the issue. For example, you can offer to pay very high finance charges if you are late on payment. You can also agree to high prepayment fees to show you are not planning on refinancing in the future. 

Agree to High Monthly Payments

High monthly payments mean a shorter loan term, which poses less risk to the lender. The lender will make back the principal sum very quickly. There is also less change inflation will decrease the lender's profit on a short-term loan. If you can provide very high payments each month, a lender may be willing to work with you despite your bad credit. Seek loans as short as 3 years if they are less than or equal to $10,000. This can be a burden, but it will end up costing you far less than seeking a longer loan with an alternative lender.

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