Getting an unsecured loan with bad credit can be a challenge, but may be possible if an individual can find a cosigner, is willing to agree to less than favorable loan terms, or is able to improve his credit quickly. Other options include getting a loan from a friend or family member or using a peer-to-peer loan service. Some types of loans, such as some government-secured student loans, are not awarded on the basis of credit worthiness but are to be used only for the purpose of obtaining an education.
If an individual has bad credit, she will likely have an easier time getting approved for a loan with good terms if she can take the time to improve her credit ranking. In situations where this is not an option, she may have several alternatives, depending on the type of loan that she needs and the loan's purpose. For example, in the United States, federal student loans are available to those who wish to go to school, and an applicant does not have to have good credit to qualify for one of these loans. A person does, however, have to be legitimately enrolled in an approved school and pursuing a degree program. For those who need an unsecured loan with bad credit but do not plan to go back to school, other options need to be explored.
Someone with bad credit may be eligible for a loan at a decent interest rate if he can get a friend or family member who has good credit to agree to cosign the loan. The downside to this option is that the cosigner takes on significant risks if the borrower does not pay off the loan, risks that can include having to pay back the loan instead of the borrower as well as damage to his or her credit. In some cases, a friend or family member may feel that there is less of a risk in actually lending the money directly to the borrower.
Some lenders specialize in lending to people with bad credit. While this can be an option for someone who needs an unsecured loan with bad credit, the borrower should be aware that these subprime lenders typically charge high interest and high fees and may lend at terms that are unfavorable to the borrower. For someone who already has bad credit, borrowing through such a service could compound his financial problems and make his credit even worse.
Another option for getting an unsecured loan with bad credit is working with a peer-to-peer lending service. These services operate online and allow individuals to present themselves and their request for a loan to other site participants. Individuals acting as lenders can review these requests and make their own decisions regarding offering the requester a loan. The advantage to a peer-to-peer site for someone with bad credit is that he may have an easier time persuading individual lenders to fulfill his loan request rather than being subject to a bank's policies. The downside is that unsecured loans through peer-to-peer lending services can have very high interest rates, often comparable to that of a subprime credit card.