No, you do not need good credit for a personal loan. However, we cannot deny the fact that a good credit score is much more desirable to lenders than a bad one. With a good credit score, you can qualify for a good credit loan, and this will save you a lot of money over the life of the loan.
The Benefits of Good Credit
Before a lender grants you a loan, he or she will pull your credit scores. If you have good credit, you will be determined to be a good risk. This means that your lender can be extremely confident that he or she will get his or her money back on time. Because of this, the lender will be willing to offer you a low interest rate. With a low interest rate, you will pay a lower amount of interest than someone who has a lower credit score. For example, you want to borrow $10,000. Because you will be receiving a good credit loan, your interest rate will only be 5.99 percent. In contrast, a borrower with a low credit score would receive an interest rate of 21.9 percent, and this would increase the cost of the loan considerably.
The Bad Credit Loan
It’s also possible that you would be denied a loan because of your low credit score, but this is not the case with all lenders. Some lenders can offer you a bad credit loan, but these lenders will, most likely, offer you a high interest rate. All hope is not lost. You don’t have to resort to a bad credit loan if you can take a little time to clean up your credit reports before you apply. The first thing you will need to do is obtain your credit reports from the credit bureaus Experian, TransUnion and Equifax. Make sure that everything is accurate on this report. If you do find errors, you can dispute them and have them removed. If you have not been paying your bills on time, start doing that now. Also, begin reducing the amount of debt you are currently carrying. If any accounts have gone to collections, contact the creditor, and offer to pay the remainder of the balance. The lender will need to agree to state that you have paid the account in full. Follow these suggestions, and you may be able to receive a good credit loan with a low interest rate after all.