It's an unfortunate truth that people with poor credit are often charged higher interest rates for loans. These higher rates can result in them paying hundreds or thousands of dollars more for the money than those with good credit scores. However, it may be possible to qualify for a low-interest personal loan with less-than-great credit. Here are two things you can try.
Get a Cosigner
Even though you may qualify for the loan with your own credit score and financial resources, you may want to consider getting someone with good credit to co-sign the loan if you want to get a better interest rate. Banks are all about risk and, to them, a low credit score indicates a high risk of default. You can lower your risk profile by getting someone with a high credit score to co-sign the loan. Not only does the person's good credit history reflect positively on your application, but lending the money to you may be seen as less risky since the co-signer can be held liable for the payments if you default.
An alternative option to getting someone to co-sign is to have the person add you as an authorized user on their credit accounts. Their positive credit history will appear on your credit report, which can drastically improve your score and help you get approved for a lower interest rate. Be careful to get someone with stable finances, though. If the person experiences a financial setback that hurts their credit score, your score will go down too.
Put Up Collateral
Another option for lowering the interest rate is to offer collateral for the loan. As mentioned previously, banks want to mitigate their risks when lending money. An unsecured loan is possibly the riskiest type of financial product, because the options for recovering losses when people default on loans are few. However, a secured loan is seen as less risky because the bank can sell the collateral backing the loan to recoup some of the money lost when the debtor stopped paying as agreed.
Offering collateral to back the loan reduces your risk profile, and the bank may be willing to give you a lower interest rate in return. Try to only use collateral you can afford to lose, though. You don't want to end losing something valuable or necessary (e.g., your home) if you become unable to continue paying back the money.
For more tips on lowering your interest rate or to take out a personal loan, contact a lender in your area.