Getting a home improvement loan can be tricky at the best of times but getting a home improvement loan with bad credit can seem to be almost impossible. Luckily, it isn’t impossible, just tricky. In this article we are going to explore some of the methods you can explore to be granted that home improvement loan.
There are a few options you can explore, from using companies that specialize in loans for people with questionable credit, to getting a counter signatory to sign onto the debt. We shall look at these options and others in detail in the sections below.
So, if your home is requiring a makeover or is in urgent need of repairs then we have listed some of the ways you can try to secure the financing you require.
Start Repairing Your Credit
If time isn’t important then this is one sure fire way of securing that loan. This isn’t the best option for everyone though as it does involve making some tough decisions and settling off any outstanding debt you may have. As I said this isn’t a solution for anyone in a hurry as until your credit score is improved you also need to refrain from accumulating any further debt.
Look at your credit score and identify and understand the problem areas, then you can begin to work on fixing them. Everyone is entitled to a free yearly listing of your credit score, so it doesn’t cost anything.
Ultimately, this is the best way to go about achieving that home improvement loan and with improved credit rating it also opens many other doors. But it isn’t a quick fix, the next options are for those who don’t have the time, or can’t, currently improve their credit score.
Use a Co-Signer
If you have a family member or friend who is willing to become a co-signatory on your loan application, then this can be a great option. Basically, you are using their credit history on the loan application.
But they are also the person that the loan company acts against if you default on the payments, so if you want to keep talking to your family and friends then it is a good idea to keep those payments up!
There are lots of lenders who specialize in lending to people with bad credit history. Generally, you will end up paying slightly higher interest rates than through other lenders, so when doing your research make sure you are forewarned about the applicable interest rates.
Within this sector there are even some lenders that specialize in lending for Home Improvement purposes. The reasoning is that someone who is borrowing for this purpose is likely a responsible homeowner and is putting the money to good use.
Try a Local Credit Union
Local Credit Unions can be a great place to try and get a home credit loan, they are usually community run and as such they understand the situation of the local residents. Whilst most credit unions will check the credit history of applicants, they are less likely to base their decision entirely on this factor.
A bit of research on the Internet will soon list any credit unions that exist in your area.
Secure a Loan against Your Property
If you own your property, then one method you could try is to secure your loan against the value of the property. Lenders are far more likely to be obliging if you can back your application with collateral.
Of course, the downside of this is you are at risk of losing your home or other property if the loan is defaulted against. However, if you are confident in your ability to pay, then getting a secured loan is far easier than getting an unsecured loan.
Try Your Personal Bank
If you have had a long-term relationship with your bank, then they may be able to help despite your credit score. They may put limits on the amount of loan they are willing to give, so it might not be suitable for those requiring larger loans.
Banks don’t have any policies in place to cover this, it really is down to the relationship you have built with them as to whether they grant what in effect is a good-faith loan.
This is an online platform that has been on the go since 2005. Peer-to-Peer lending works by getting a loan directly from an individual or group of individuals rather from a bank or other institution. To get a loan using this method borrowers post a listing on a peer-to-peer website (there are many). In this listing you give your basic details, the amount of the required loan and the purpose of the loan.
Lenders can browse the listed proposals and choose which borrowers and proposals they wish to fund.
Borrow from Family or Friends
If you have an understanding family or wealthy friends, then this option is worth considering. However, it does carry the same pitfalls as using a co-signatory. More broken friendships and family feuds are caused by financial matters than for just about any other reason.
However, it is highly unlikely that credit score would be taken into account in these circumstances and in many cases the interest charged will be super-low or even non-existent.
To protect both parties it is best that this is treated as a business agreement and formal papers are drawn up to agree on the amounts and payback arrangements. It is also a good idea to include in a written contract what happens in instances when the debt for whatever reason, is not paid back.
Loans to Avoid
Hopefully there is an option in the above list that will suit your purposes. However, there are some loans that it is best to avoid altogether. Loans that have excessive interest rates are frequently touted at the bad credit market. While it seems like a good short-term fix, they could in the longer term put you in a worse credit situation.
Payday lenders might also seem like a good idea, but are not on the slightest bit suitable for all but the most urgent home repairs. They normally have extremely short loan terms and exceptionally high interest rates which effectively rule them out as a suitable home improvement loan.