Can I Take Out a Personal Loan with a Low Credit Score
                     C A N I T A K E O U T A
P E R S O N A L L O A N W I T 
H  A L O W C R E D I T S 
C O R E ?
B Y L E V E L F I N A N C  I N 
G

Loans can be beneficial when your current cash 
availability  is too low to cover certain expenses. People 
use them for  various reasons, from home improvements 
to car repairs.
However, banks and other loan providers sometimes 
make  life challenging for applicants. They look at factors 
before  deciding whether to approve a loan request and 
what  interest to charge.
One of these factors is the applicant’s credit score, 
which  lenders use to evaluate the applicant’s 
creditworthiness.
A credit score is calculated based on the information in credit  
reports compiled by bureaus like Equifax, Experian, and  
TransUnion. Its purpose is to give a numerical representation 
of  an individual’s creditworthiness. Generally, credit scores 
range  from 300 to 850. Based on data provided by Experian:
a credit score between 800 and 850 is 
considered  exceptional;
a credit score between 740 and 799 is considered 
very  good;
a credit score between 670 and 739 is considered 
good;  a credit score between 580 and 669 is 
considered fair;  a credit score between 300 and 579 is 
considered poor.
Some banks are very clear on the minimum credit score required 
 for a personal loan application to be considered. For example,  
CNBC reports that Happy Money only considers loan 
applications  from borrowers with a credit score of 640 or 
higher.
However, for most banks, your credit score is just one of the  
several factors to evaluate before deciding whether to accept  
your loan application. If you score very well on other criteria, 
your  application may be successful even if your credit score is 
very  low.
Here are some other criteria used by lenders to evaluate 
your  personal loan application.
Your current income –  All other factors being equal, the 
higher  your income, the higher the chance a lender will 
approve your  personal loan application.
Your debt-to-income ratio –  This value symbolizes the  
percentage of your monthly income that goes toward debt  
repayments. A lower debt-to-income ratio increases the chance 
a  lender will accept your application.
Your liquid assets –  Many banks will also consider the amount 
of  money you have in cash and liquid assets when deciding 
whether  to give out a loan or not.
In the event lenders approve your loan application, your credit  
score may have a significant impact on the interest rate that 
you  will pay.
The interest rate on those with a credit score below 690 tends 
to  be higher than 17.80%. Those with a credit score below 630 
may  pay up to 32%
When the interest rate your bank asks is particularly high, you  
should ask yourself whether taking out a personal loan is worth 
it.  High interest rates make it easier to fall into a debt trap, that 
is,  when you need to accumulate new debt just to pay your 
older  one.
If you have accumulated too much debt, you should first 
consider  enrolling in debt management or a debt settlement 
plan before  taking out new loans.
Typically, online lenders tend to be a better option for those  
applying for a personal loan with a low credit score. That’s  
because online lenders have lower overhead costs than  
traditional banks and can afford a lower interest rate, all 
other  factors being equal.
They also tend to have friendlier and more responsive online 
 customer support, which is ideal when you want to ask 
many  questions before sending the actual loan application.
Secured personal loan –  A secured personal loan is a loan  
backed by an asset such as a car, house, or savings account.  
When you approach a lender for the said loan, they are less  
likely to consider your credit score as a deciding factor, as 
the  loan is secured with the asset you provide as collateral.
Home equity loan –  If you are a homeowner, then you can 
use  the equity of your home to take out a loan. A home 
equity loan  usually charges a lower interest rate than 
unsecured personal  loans, and may be easier to obtain for 
those with a low credit  score.
A payday loan –  If you don’t want to use any collateral, then a 
 payday loan is an option. This type of loan is usually short-
term  and has very high interest. Only use it if you’re sure that 
you  can pay it back within the agreed timeframe and don’t 
have any  other options.
Peer-to-peer loan –  Peer-to-peer loans involve direct lending  
from individual investors to borrowers, who are then able to  
access the funds for their needs. Interest rates, loan terms, 
and  other conditions are usually negotiable, so this type of 
loan is a  good option if you have a low credit score.
Life insurance policy loan – You can also use your life 
insurance  policy as collateral for a loan. This type of loan is 
interest-free,  and the repayment will not affect your credit 
score. However, if  you default on the loan, the insurance 
company can use your  policy to pay off the loan.
Asking family or friends – If you feel uncomfortable using a 
loan,  you can always ask family or friends for money. Money 
borrowed  by family or friends is not reported to the credit 
bureaus, so it  won’t affect your credit score. However, this 
should be used as a  last resort since borrowing from family or 
friends risks damaging  relationships if you cannot repay 
them.
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