This article has been updated.  Back when it was written in 2009 we had several guaranteed approval lenders.  The economy has changed and most of these lenders are gone now.  There are still bad credit lenders on the market though.  I’ve updated this article to talk about who they are and how to get approved.

Having bad credit can make it difficult for a person to get approved for standard loans from banks or credit unions.  Subprime loans are loans that are  targeted to service consumers with lower than average credit scores.  These loans usually have higher interest rates and may have fees, but that is to be expected when dealing with a legitimate sub prime lender.

Sub prime lenders got a bad reputation back in 2008 when the mortgage crisis started to hit.  And it wasn’t just sub prime lenders that took advantage of bad credit consumers.  Little regulation allowed unscrupulous bankers to charge enormous fees to unsuspecting bad credit borrowers.

Now there is a lot more regulation AND with the help of the internet.  Consumers are more informed and not falling for a lot of the scams that were rampant back then.

Hey, I’ve found a low interest bad credit loan!

Be very careful when you see a bad credit lender offering lower than normal rates to people with bad credit.  We have had clients tell us they were offered (over the phone, thru an unsolicited phone call….) extremely low rates for an unsecured personal loan.  We tell them this, low interest bad credit loans truly don’t exist.  The higher interest rate charged is because of the higher than average risk of default associated with bad credit financing.

When you see online banks  or unsolicited phone “lenders” offering better interest rates than normal banks but saying they will approve bad credit….look at the fine print.  Many times you will see that the following is true:

• The line of credit can only be used in their catalog or shops
• There are a lot of fees associated with the line of credit.  In some cases they give you a $500 line of credit but their fees total $495
• They make no guarantee that you will actually be approved at that rate.  A few days go by, they tell you only 1 bank was willing to give you a good credit line.  But its only for merchandise they sell.  They then tell you they can get you an unsecured credit line but its will be at the rate all the other bad credit lenders are offering.  Only difference is they may tack on a “finders fee” of 1 or 2 % of the loan amount as their fee.

When applying for a loan and you know you have a low credit score, or high than average debt load.  Be realistic.  Having worked in business financing for over 20 years I’m constantly surprised when someone sits down at my desk and wants to tell me a “story” that will make me want to ignore their low credit score and almost non-existent financial documentation.  Let me tell you, it doesn’t work.

Tips to help you get approved for a bad credit loan

If you plan on going into your local bank and applying for a loan, here are some tips to help you get approved

1. Instead of making the lender focus on the negative aspects of a deal, they should focus on the positive aspects.  Why does it make sense to make this loan to you.  What has happened recently to make it less risky to lend you any money
2. How do you plan on paying back the loan.  Make it clear
3. How have you been improving your credit situation.
4. If you have a lot of debt, explain how you uncured the debt and what you have been doing to bring it down
5. Have a letter of explanation for the low credit score or high debt ratio available.  Be ready to answer questions about how and why you think this loan will help you, and how you plan on paying back
6. Make sure that you have some money in the bank – if you are flat broke AND have bad credit AND have no means of paying the loan back.  You would be better served looking for a loan thru friends and family.