Do you want to start a business, but have bad credit? People with bad credit have the hardest time getting loans because lenders do not want to take the risk. If your credit score is poor, getting credit might be hard but not impossible.
Here are some sources of money for people with bad credit:
Home Equity Line of Credit (HELOC)
If you own a home and you have some equity in it, you should consider getting a HELOC. However, taking out this loan is risky because you are essentially putting your home on the line. Still, a HELOC is the best kind of loan if you have poor credit.
If you need a loan but have bad credit, you can get a tax-deductible LOC at a good rate of interest without any constraints on how you spend your money. Just remember that limitations exist for claiming your LOC as a tax deduction. Before approving, your lender needs to see some proof of strong employment history.
If you qualify for a home equity line of credit, make sure that you compare lenders to get the best rates. As with most loans for bad credit, a home equity line of credit has higher rates of interest than a traditional one.
Pros
- Adjustable-rate HELOCs have lower interest rates
- You can use the funds as you please
- You pay lower rates than you would with credit cards
Cons
- You must pay closing costs
- The bank can decide to cancel your line of credit
- Your home serves as collateral
- If you fail to use your LOC immediately, you risk facing extra fees
Peer-to-peer
A peer to peer loan is a newer yet equally reliable way of borrowing money. The loan is usually fielded from peer-to-peer lending websites such as Lending Club and Prosper. They allow potential borrowers to get them from individual lenders instead of banks.
Peer-to-peer lending has become a very popular way of getting bad credit loans. However, the sites have requirements for the borrowers. Depending on your employment and credit history, you can get a loan with rates as low as 5.49 percent APR.
Remember that these are unsecured. Make sure that you find the best peer to peer loans for bad credit online.
Pros
- Lower rates of interest than credit cards
- You will pay fewer potential rates
- This one might be easier to get than a bank loan
- You can explain to investors why your credit is so poor
- You can borrow more money than with bank loans
Cons
- Rates can be as high as thirty-six percent
- Lending sites have stringent borrowing qualifications
- It can take longer than two weeks to get the money, depending on the lender.
- You have to raise loan funds from several borrowers
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Loans from friends or family members
This is the most difficult type of loan to ask for because you will be putting your relationship at risk. However, the main advantage of this one is that your credit score does not matter. This loan should be your last resort after you have exhausted all your options.
You need to draft a loan agreement that outlines the terms to avoid confusion. Good faith is necessary for your and your friend’s part.
Pros
- You might receive money instantly
- The terms of approval do not depend on your credit score
Cons
- This loan can be hard to obtain
- You might face legal action for refusing to pay back the loan on time.
