A poor credit score can often lower your chances of getting a Mortgage Loan approved. Borrowing with bad credit, in general, can be a challenge too.
High-interest rates and shorter loan terms aren’t the only drawbacks of borrowing with bad credit. However, this does not mean that borrowers with bad credit cannot get a good loan funded. Yes, it might be very difficult or even impossible to get a bank mortgage with bad credit.
Still, private loans are always a good option, and in some cases, private lenders might be able to offer you a loan with better terms and conditions than a traditional mortgage. This blog will provide you a brief understanding of where and how to borrow with a bad credit score.
A bad credit score isn’t the sole deciding element of how successful your commercial investing venture would turn out to be, and so we believe that a poor credit score shouldn’t hold you back anymore. Here are some ways to get lender-approved for a private loan, even with bad credit.
Private Student Loans
If you are a student and want to borrow a loan to pursue your education, you can explore two basic types of loans. The first one is the government’s federal loans, and the second one is the private loans funded by non-Federal lenders, including credit unions and state agencies.
While most students suffer from little or no income or credit history, it is harder for students to assure banks of their loan repayment capacity.
You can get a private loan approved from private hard money lenders or credit unions, or community banks in such cases. The document verification concerning private student loans is a flexible one. As long as you can convince your private lender about your loan repayment capacity, your loan is good to be approved.
Individual lenders are lenders in your close family or friends circle and are willing to extend a personal or a business loan to you. Some of the major advantages of borrowing from individual lenders for people with bad credit are that you can secure a lower interest rate and a shorter or longer loan repayment period based on your need, and the ability to temporarily reduce payments for a few months during a financial emergency.
These advantages are only available while borrowing from individual lenders. However, it is important to behave professionally and be prompt with payments and draft a simple agreement to rule out all the terms and conditions clearly to avoid any confusion on a later date.
Private Money Lenders for Commercial Real Estate
If you are looking to finance your commercial real estate and cannot qualify for a bank mortgage – your next best bet would be private money lenders. Private hard money lenders are non-bank and non-institutional lenders in the market who lend private loans to people offering high-interest loans.
They charge higher interest rates in comparison to banks as their lending standards are flexible. Private lenders are a boon to self-employed borrowers who do not have a regular cash inflow to show or verify their income.
For others who suffer from bad credit, too, private money lenders are often a great option. Getting your loan approved from a private lender is much simpler and sooner.
Flexible Borrowing Requirements
Private lenders generally have highly flexible Borrowing Requirements, which vary from borrower to borrower or on a case-to-case basis. Private lenders are often open-minded and are understanding of borrowers’ situations.
Their flexible Borrowing Requirements make the last resort to some borrowers and the best resort to most of the borrowers. Even when borrowers can qualify the stringent qualifying standards of traditional banks, many have opted for a loan from a private lender in the past, mainly because of the flexible Borrowing Requirements.
If you have a bad credit score, explain why to your private lender genuinely and authentically, and more often than not – they will understand.
Negotiations can go a long way.
When it comes to taking a loan from a private lender, negotiation can really go a long way. As private loans do not come with stringent terms and conditions, it is always up to the understanding of the borrower and the lender as to what the terms and conditions of the loan must look like.
As long as it sounds fair, you can try to negotiate the best terms for your loan using the property’s location and propose a viable model of how you would recover the loan amount and repay the same in monthly instalments.
If you can convince your lender of your loan repayment capacity and can assure them of you repaying the loan – you can get great loans at the best rates.
Illustrate a projected income statement
Using a projected income statement to assure your private lender about your loan repayment is probably one of the best ways of getting your loan approved from a private lender.
A projected income statement would include your budget of estimated receipts and expenditure concerning the loan amount and how you wish to disburse the loan funding across your commercial investing strategy.
If you plan on specific types of investments like fix and flip properties, it is always suggested that you communicate the same to your private tender and illustrate a projected income statement showing how soon you will recover the loan amount and how you plan on making monthly payments of both interest amount and principal amount alike.
Additionally, having someone both you and your lender know to testify for your loan or to provide some guarantee to your private lender about your loan repayment is also a good strategy that can often put you in a far good condition to get your loan funded.
If you can find someone who is a regular borrower to your lender, that can really do wonders to your loan approval policy, and if you get lucky – you can also negotiate better on other terms of the loan.
Going the extra mile and illustrating your lender on how you plan to repay your loan can really pay off well and is also justified as private lenders are also going the extra mile by trusting you with their loan money despite a poor credit score.
At the end of the day, private money lending and borrowing are all about the understanding and the relationship that you build and maintain with the lender.
In a nutshell – The fastest way to get your loan private lender approved is a combination of persuasion and negotiation skills, coupled with a projected income statement that shows a plan A and plan B on how you plan to repay your loan, and forming a genuine, authentic relationship with your private lender.