How To Get Approved For A $5,000 Loan With Bad Credit

May 10, 2020 Personal Loans
How To Get Approved For A $5,000 Loan With Bad Credit

Getting approved for a $5,000 loan when you have bad credit is difficult. Your options are limited and you can face high interest rates and fees.

Below, we list the pros and cons of taking out a loan with bad credit, along with our best tips for acquiring an unsecured personal loan with bad credit and your potential alternatives.

Pros

  • You can fill out a quick and easy online application, which can save you time and connect you with multiple lenders who offer competitive rates and terms.
  • You will deal with minimal or no credit checks. (Example: A no credit check auto loan.) These lenders accept bad credit or no credit and don't authorize any credit checks.

Cons

  • Emergency personal loans, payday loans, signature loans, and auto title loans come with high interest rates and fees, although these are capped by state regulations. (Most interest rates are maxed out at 36%.)
  • There are many lenders who prey on bad credit borrowers, so be sure to check real customer reviews on TrustPilot and ratings on the BBB.

Our Tips For Getting Approved For A Loan With Bad Credit

Finding a loan with low interest rates is difficult when you have bad credit, but there are some steps you can take to make sure you get the best possible loan:

  • Work on improving your credit. Your credit score determines the rates and terms you receive. Improving your credit opens up a world of possibilities for you.
  • If you have time, spend a few months making on-time payments and paying down high-balance credit cards (if possible).
  • You can also consider taking out a secured credit card or take out a credit builder loan.
  • Repair your credit. You can order a copy of your credit reports from the three bureaus (Experian, Equifax, and TransUnion) and look through them for any errors. (You can get a copy of your three-bureau credit reports once a year for free at AnnualCreditReport.com.)
  • If you find any inaccurate and negative information on your report, you can dispute them to have it removed. You can either do this on your own or hire a reputable credit repair company.
  • While most personal loans are unsecured, you can consider finding a lender that allows you to apply for a secured loan using an asset (like your vehicle) as collateral.
  • You may consider asking a trusted family member or friend with good credit to be a cosigner on your loan. However, this puts your cosigner at risk if you default on your loan.
  • Contact your lender to check their eligibility requirements before you apply.
  • Compare all of your loan options carefully before you submit one. This includes looking to peer-to-peer lending platforms and local banks or credit unions.   If you are looking specifically to purchase a car, look to auto lenders who cater to borrowers with bad credit.   Credit unions often offer emergency loans for borrowers with bad credit and may even offer lower interest rates and better terms since they look at your finances beyond just your credit.
  • A $5,000 loan generally has a shorter repayment period, so each monthly payment (along with the interest rates) can be fairly high. Many lenders offer an online repayment calculator for you to double-check the cost.

Alternatives To $5,000 Personal Loans

You already know to expect high interest rates and fees when you take out a loan with bad credit, so it's in your best interest to look into other funding options.

Below, we list some alternate options for you before you consider a $5,000 loan:

  • If you are a homeowner, you can use your home for a home equity loan or line of credit to fund your expenses. Since your house is used as collateral, you are more likely to be approved for financing with lower interest rates.   Your home equity and creditworthiness determine how much you can ultimately borrow, but keep in mind that you should never use collateral like a home unless you are completely sure that you can repay your loan in full. Failing to do so can result in the loss of your property.
  • Turn to local resources such as government agencies, local charities, nonprofits, and religious organizations which help with rent and utilities for those in need.
  • If you are trouble making payments on time, ask your bill providers for a payment extension.
  • Ask your employer for a paycheck advance.
  • Pick up a side job. You can sign up for a rideshare service, a food delivery service, transcription, or sell any extra items you have.
  • Ask a trusted family member or friend for a loan (if all parties are comfortable with it and can come to a repayment agreement).
  • In the meantime, start building an emergency fund and put it in a savings account that can't be accessed easily. This can be as simple as putting away $10 to $25 a week, which can cover future emergencies and prevent you from taking out another loan in the future.

How To Choose A $5,000 Loan

  • Depending on how urgently you need the funds, you can either turn to a lender who funds your loan quickly or search for one that will give you the best terms and rates. (Loan terms usually range from 3 to 18 months.)   Most lenders take anywhere from 2 to 7 business days to fund your loan, although there are same-day personal loans.   Most lenders will disclose their funding times on their website, so you can shop around before you pick a lender or lending network.   If you are not facing an emergency, take the time to look at your options -- you don't want to pick the wrong loan and face triple-digit APRs.
  • Make sure you have all of the required information and documents (bank account statements, pay stubs, and W-2s) to make your loan process quicker and smoother.
  • Check if your lender offers additional benefits such as late payment forgiveness, choosing your payment date, or additional services.
  • Fill out the application and upload any required documents such as bank statements, proof of income, and a valid photo ID.
  • Review your information and read over your terms and rates before signing and submitting.

Our Top Picks For A $5,000 With Bad Credit

There are plenty of lenders that work with bad credit, but it's much easier to turn to an online lending network to compare hundreds of potential loans with one single application. Here are two of our favorites:

BadCreditLoans.com

  • Fill out one simple application at BadCreditLoans.com to connect with multiple lenders
  • Interest rates 5.99% - 35.99%
  • Loan terms 3 to 60 months
  • Loans from $500 to $5,000
  • Receive your funds as soon as the next business day

LoansUnder36

  • LoansUnder36 provides unsecured personal loans
  • No application fees, hidden fees, or prepayment penalties
  • Loans from $500 to $35,000
  • Loan terms 61 days to 72 months
  • Interest rates from 5.99% to 35.99%
  • LoansUnder36 can't guarantee specific interest rates since loan terms, loan amounts, and interest rates are set by their lending partners
  • Funds are directly deposited to your bank account as soon as the next business day

Is my personal information secure when I apply for loans online?

Most websites will use 128-bit or 256-bit SSL encryption to ensure that your personal information is kept safe.

Do I need a checking account to take out a loan?

Most lenders will require that you have an active and valid checking or savings account to deposit your funds electronically.

Exactly what credit score is considered bad?

Most lenders use your FICO® score to determine whether you are a reliable or risky borrower. In general, your FICO® score is considered poor if it falls under 620.

What if the interest rates offered by a potential lender are too high for me?

It's difficult to take out a personal loan with bad credit, but there are lenders who may ask you to put up your savings or a car as collateral to qualify for a secured loan with lower rates.

What are the risks of taking out a loan with bad credit?

Many loans come with high interest rates and fees, although these are capped by state regulations (interest rates are usually maxed out at 36%).

There are lenders who prey on bad credit borrowers, so be sure to check real customer reviews on TrustPilot and ratings on the BBB.

About The Author

Ashley Davison avatar

Ashley Davison

Director of Operations, Credit Saint LLC

Ashley is currently the Chief Operating Officer for Credit Saint, previously working as a Logistics Coordinator at Ernst & Young. She is currently working toward an Executive Leadership Certificate from Cornell University.

With a degree in education, she is eager to teach the world everything she knows and learn everything that she doesn’t already know! Ashley is a FICO® certified professional, a Board Certified Credit Consultant, Certified Credit Score Consultant with the Credit Consultants Association of America and holds a Fair Credit Reporting Act (FCRA) Compliance Certificate.