Why Is It So Hard to Find an Installment Loan With Bad Credit?

Wise Loan Editorial Team
By: Wise Loan Editorial Team
a top view of a stressed young Asian woman trying to find money to pay her credit card debt

Installment Loans for Bad Credit

It’s a widely known fact that credit scores can significantly impact one’s access to financial opportunities, either opening or closing doors depending on their credit history. If you find it challenging to secure an installment loan due to bad credit, it’s essential to comprehend the reasons behind this and explore ways to level the playing field for yourself. Understanding how credit plays a crucial role in evaluating risk and what constitutes bad credit from a lender’s perspective is vital.

Why is Obtaining an Installment Loan Difficult with Bad Credit?

In essence, lenders view individuals with bad credit as risky borrowers. This means that if you have a poor credit score, the lender perceives a higher likelihood of you not repaying the loan as agreed upon. Consequently, lenders are generally more reluctant to provide loans to those with low credit scores.

Let’s delve into this further by considering how someone may end up with a bad credit score. One way is having a lackluster score due to limited credit history. Credit scores are influenced by various factors, such as the duration of your credit history, the diversity of credit types you have, and your history of timely payments. With a relatively short credit history, it becomes more challenging to establish a good credit score.

In such cases, lenders may perceive you as a neutral risk since there is insufficient data in your credit profile to gauge your likelihood of repaying debts. This can make securing an installment loan somewhat difficult, and if lenders who work with individuals with minimal or no credit history do offer you a loan, it might come with a higher interest rate compared to those offered to individuals with good credit.

On the other hand, bad credit often results from missed payments, loan defaults, or accounts ending up in collections within the last few years. In such instances, lenders have data indicating your past repayment behavior, leading them to assume that you may repeat the same pattern of not meeting debt obligations.

Consequently, lenders become highly cautious about offering credit to individuals with this type of credit history. In the rare cases where they approve an installment loan, it usually comes with higher-than-average interest rates, and you may need to start with smaller loan amounts to demonstrate your commitment to improving your creditworthiness.

Understanding What Constitutes Bad Credit

According to Experian, a bad credit score on the FICO scoring model falls between 300 and 579, while a score between 580 and 669 is considered fair. On the VantageScore model, a score of 300 to 499 is categorized as very poor, and a score of 500 to 600 is considered poor, while scores between 601 and 660 are deemed fair. Therefore, a FICO score below 580 or a VantageScore below 600 indicates bad or poor credit.

It’s crucial to note that your credit score may vary among the three major credit bureaus due to varying reporting practices by businesses and lenders. Typically, the differences in scores across bureaus are not substantial, averaging around 40 points.

In some cases, you may believe you have good credit only to be denied a loan due to bad credit. This discrepancy could be a result of a negative item on one of your credit reports that you were unaware of. To ensure you have an accurate picture of your credit history, you can check all your credit reports for free each year at AnnualCreditReport.com.

Is It Possible to Obtain a Loan With Bad Credit?

Yes, it is possible to get a loan with bad credit. However, it’s essential to understand that the terms may not be as favorable as those offered to individuals with better credit scores. Some lenders, such as Wise Loan, specialize in working with people who have less-than-ideal credit, offering options despite their credit challenges.

Is It Possible to Get an Installment Loan With No Credit Check?

Yes, some lenders evaluate loan applications without conducting a credit check. Instead, they may base their approval decision on other factors, such as your income and financial stability.

Differentiating Bad Credit Installment Loans from Payday Loans

It’s important to clarify that bad credit installment loans are distinct from payday loans. Payday loans are small, short-term loans designed to be repaid within a few weeks, usually against the borrower’s next paycheck or two. In contrast, installment loans are repaid through regular biweekly or monthly installments over an extended period, spanning several months or years. Consequently, installment loans are generally more manageable and sustainable than payday loans, which can quickly deplete a borrower’s paycheck, leaving them in a financially vulnerable position.

Improving Your Chances of Securing an Installment Loan with Bad Credit

If possible, consider waiting to apply for a loan until you have improved your credit, as this may open doors to more favorable terms. However, building credit takes time, and sometimes a loan is necessary to help improve your credit standing. To increase the likelihood of being approved for a loan with bad credit, here are some valuable tips:

  1. Conduct thorough research: Avoid random loan applications that can negatively impact your credit through hard inquiries. Instead, carefully assess each loan’s requirements and suitability, applying only when you believe you have a reasonable chance of approval.
  1. Be realistic about loan amounts: Apply for a loan that aligns with your financial capacity to repay. Lenders are more likely to approve borrowers who demonstrate the ability to repay their debts responsibly.
  1. Gather necessary documentation: Be prepared to provide documentation of your income and other relevant information when applying for a loan. Having all the required paperwork in order streamlines the process and enhances your chances of approval.

To increase the likelihood of being approved for a loan with bad credit, here are some valuable tips

Apply with Wise Loan Today

If you’re in need of a loan and have bad credit, don’t hesitate to apply with Wise Loan. The application process takes less than five minutes, and approval is possible regardless of your credit history. Apply today to discover if you’re approved quickly and receive your funds in as little as an hour.

The recommendations contained in this article are designed for informational purposes only.  Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.

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About the Author

Wise Loan Editorial Team

Wise Loan Editorial Team

Introducing the Wise Loan Editorial Team – a collective of experienced finance and credit professionals dedicated to enhancing your financial path. Our team boasts over three decades of expertise in the finance sector, united in our commitment to deliver reliable and practical financial insights. True to the Wise Loan ethos, our goal is to positively impact the financial well-being of our customers.

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