Bad Credit Loan Alternatives With Consolidation

There are loans for people of nearly every level of credit worthiness---including those with bad credit. People with bad credit generally have credit scores in the 500s and lower, according to the website Bank Rate. At that level, borrowers often have to resort to loans from lenders comfortable with so-called sub-prime borrowers. Those lenders generally charge very high interest rates and sometimes onerous fees. There are, however, a few alternatives.

Credit Unions

Credit unions are owned by their members and often have lending standards that are more flexible than those held by banks. Your credit union may lend to you even with your poor credit score---especially if the purpose of your loan is to reorganize your debt so you can get back on track financially. Of course you'll have to have a steady job and show an ability to repay. Also, when you borrow the money the credit union may insist on mailing the payments directly to your creditors, along with a signed letter from you asking that the accounts be canceled. That's the credit union's way of making sure that the money is used for the purpose intended and that you will emerge with lower overall monthly payments.

Consumer Finance Companies

Some finance companies do a majority of their business with people who have poor credit scores. The representative will ask you about your salary, employment and credit score, among other things. Note that borrowing from a finance company can result in much higher interest rates than on loans from banks or credit unions. Before you apply or call check your credit by getting a free copy of your report from the website Annual Credit Report (see Resources). The site was established by the three nationwide credit bureaus to provide free copies as required by law. The credit report will include instructions about how to separately order your credit score.

Family and Friends

Borrowing from family and friends could be an ideal option. Granted, you'll have to find a family member or friend who trusts you and is willing to make the loan. But borrowing from someone you know could result in terms that are far more flexible and favorable than any provided by typical lenders. Also, the loan from friends or family members does not have to be informal. There are companies specializing in managing loan transactions between friends and family (see Resources). The company acts as a middleman by drawing up a legal loan agreement and collecting monthly payments. After collecting from you each month the management company sends a check to your friend or family member. Other companies will even facilitate loans between strangers, as they match investors with potential borrowers (see Resources).

Co-signer

You may be able to get a bill consolidation loan at a bank or from another lender by offering to have someone co-sign. This isn't a lot different than getting a direct loan from a family member or friend. The co-signer will be on the hook for the loan if you default and that additional assurance may be enough to convince the bank to grant approval. Note that your co-signer will be required to have excellent credit.