While there are a number of federal loan options out there, if you are looking to go with a private lender then your credit is going to be an important factor. So, what do you do if you already have bad credit or simply haven’t built up any credit at all yet?
In today’s article, we’re going to address this issue for those of you that want to go with a private loan but aren’t sure how to get that done with bad or no credit. As it turns out, you definitely have some options, such as lenders that work with bad or no credit, improving or building your credit, finding a cosigner, and Income Share Agreements.
Don’t worry – we’re going to tell you about each of these options so that by the time we’re finished, you’ll be well-prepared to make an informed decision on funding your education.
Without further ado, let’s get started!
Ensure That You’ve Tried Your Federal Options First
If you have simply assumed that you can’t get a federal loan but haven’t actually checked, then the first thing that you need to do is fill out your FAFSA form. FAFSA stands for ‘Free Application for Federal Student Aid’ and you can fill it out even if you are still deciding on a few different schools.
You will need to select at least one of these schools from the list, though it’s better to simply list all of the ones that you have applied for admission to. That way, if you ARE eligible for any federal student aid that you might have overlooked, the information will be sent to the school and you might not need that private loan after all!
To find out if you qualify, you may fill out your FAFSA form.
A quick overview of what you will need is listed below:
- Your Federal Student aid ID from studentaid.gov (your parents will need one too if they’re helping)
- Driver’s license and Social Security number (or Alien Registration if you are not a U.S. citizen)
- W2 form, a federal tax return, and statements for any undocumented income
- Investment statements (if applicable)
- Current bank statement
- Title IV codes for schools that you wish to apply to. You can get them here if you don’t have them!
Improving Your Credit Before Applying for a Loan
If federal loans are definitely not an option, then the first thing to consider is your credit. If you have no credit or are under the assumption that you have really bad credit already, it doesn’t hurt to actually take a look in advance and it’s free once a year, every year!
Go to Annual Credit Report and you can apply to get this information and it will give you your rating with the 3 main organizations – Experian, Equifax, and TransUnion – and you can also see what debts are currently listing that are holding you back.
Aside from letting you know exactly where you stand with your credit, there’s also a lot you can do with this information, such as:
- Setting a payment schedule with credit card debtors before you apply
- Applying for a MasterCard to build credit if you have NO credit
- Sign up for Experian Boost so that you can add utility, cell phone, internet, and even Netflix payments to your Experian report to improve your FICO score. It’s free to do and every bit helps, and if your landlord reports to Experian then your on-time rent payments will be factored in as well.
- Sometimes bills you’ve paid will still appear on your credit report and you can dispute these. This gives the debtor 45 days to respond with proof that the debt is valid and if they cannot provide this, it will be removed from your report.
Try to Get a Cosigner
Another possibility for helping you to get a private loan (and even certain federal loans that you might not be eligible for on your own) is to find a cosigner. This can be a relative, your spouse, or even a very good friend, but for a private loan application you can only have ONE cosigner.
This can not only help you to get your loan, but you can get a better interest rate as your cosigner’s credit is going to be the important factor here.
We realize that it’s no fun to ask – but if it’s a matter of pride and you know someone that might help, it can save you quite a lot of cash in interest payments down the line so it’s definitely worth it if this is an option.
If finding a cosigner is simply not ‘in the cards’, then don’t worry. There are certainly private lenders that will work with bad credit and no credit, but the risk is going to be reflected in the interest rate that you receive if you are approved.
We’ll give you information about 4 of these lenders later in this article, but first let’s talk about another option that you option that you might not know about – Income Share Agreements.
Another Kind of Private StudentLoan – Income Share Agreements
Another possibility that you have if you are unable to secure a private loan is an Income Share Agreement. So, what kind of arrangement is this?
Well, an Income Share Agreement, classified as a private education loan by the Truth In Lending Act, allows you to receive funding for the school that you are attending and the way that you pay it off is by agreeing to pay a fixed percentage of your income after you’ve graduated.
The amount that you’ll need to pay as well as the agreed-upon income percentage rate will be laid out in the agreement that you’ll sign if you are approved.
An Income Share Agreement doesn’t earn interest, which is nice, and if you don’t meet a minimum financial threshold (usually a salary of 30k – 40k annually), then the payments for that year are waived and your loan term is extended. This gives you time to work your way up to the minimum threshold.
Now, if you meet the bare minimum, there’s actually a possibility that in the agreed-upon number of months that you will be paying you’ll end up paying less than you were loaned. If you end up making considerably more, however, then you could end up paying a bit more than you received.
There is a maximum repayment cap that helps to minimize the impact if you happen to land your dream job with a super-high salary, but as you can see it’s a little bit of a risky proposition. If you get your education and your dream-job doesn’t pan out, then you’ll pay less, but if you’re an instant success then that will come at a cost.
This type of financial agreement is available with a number of 4 year programs, typically accelerated learning courses, coding programs, or even certificate programs for the tech minded, and they often offered by colleges as well as by employers who are looking to expand your education in the absence of federal or private loan options.
That sounds a little bit scary… why would I want to use an ISA?
You might be wondering why you’d want to give someone a chunk of your paycheck for a period of time, but there are certainly scenarios when an Income Share Agreement is going to be an attractive option. Here are some reasons why you might consider an ISA to fund your education:
- If you have a very low credit score and the interest rates for a private loan option are prohibitively high
- You’re looking to enter a field that is profitable, but which statistically doesn’t have much more than a small range of income growth potential
- You’ve exhausted federal and private loan options
- The school that you are considering is offering an attractive ISA with a low payment cap and very reasonable terms
In scenarios like the ones that we’ve listed, an ISA might be just about perfect for you, but there are still some things that you’ll need to know. To ensure that you’re prepared, we’ll tell you what you need to look for and give you a sample scenario where you’ve gotten an ISA so that you can see what your payments and terms might actually look like.
Evaluating ISA options – what you need to know
When you are considering an ISA agreement, there are some key areas that you will want to pay close attention to. Here is what you’ll want to look for:
- Repayment timeline – this might be something like10 years of monthly payments for a period of 120 months
- Maximum payment cap – This is very important if you end up making more. This is a set ‘cap’ on the MOST that they can charge you if you draw a larger paycheck than anticipated.
- Income percentage – This will usually be 3%, 7%, or as much as 10% of your yearly income that will be paid towards your ISA.
- Minimum income threshold – This is the minimum amount that will ‘trigger’ your scheduled payments. If you start with an employer and you are making less than this amount, then your term will typically be extended for that year so that you can work up to this income level. The loan is still there, but you won’t have to pay anything yet.
Sample ISA scenario
So, how does this work out in a real-life scenario? We’re glad that you asked! Let’s say that you have gotten an ISA and your credit is not necessarily the best, so you’ve gotten the following terms for a $10,000 loan:
- A repayment period of 88 months
- An income share percentage of 7%
- A Minimum income threshold of $20,000 per year/approximately $1667 per month
- A set payment cap of $23,100 (NOTE: Never take an ISA without a payment cap. A reputable ISA loan will always have a cap, otherwise you should not accept it!)
In a scenario like this, let’s say that you end up in a job making only the minimum threshold of $20,000 yearly. With a salary of 20k, your monthly cash is about $1667.00, and 7% of that is about $117 dollar. Paying $117 per month, for your 88-month period, means that you will pay a total of $10,296. In this scenario, while your salary isn’t ideal, at the end of the 88-month term you’ve only paid $296 for a loan of $10,000 – hooray!
Now, let’s say that instead of $20,000 a year, you end up starting with a cool $50,000 a year salary. What happens then?
Well, at $50,000 per year, you are now bringing in about $4667 per month, and with great income comes great ISA culpability – 7% of that $4667 is $326, and that’s what you’ll pay every month for the next 88 months.
This is where the set payment cap is going to protect you, so again we must reiterate that you NEVER accept an ISA without one, and a scenario like this is the reason why.
Without a payment cap, in a period of 88 months, you would be repaying $28,688 dollars for a $10,000 loan. Yikes! With the repayment cap from your terms, however, you’ll end up paying $23,100 for that loan, and that’s still a little more than twice what you borrowed.
Keep in mind that this is just a simple scenario. You might have quarterly or biannual reviews where you could get a 2-4% raise, and your monthly payments would be adjusted accordingly, but this scenario gives you a general idea of how the ISA works.
Also, there are lower rates and higher ones – typically you’re looking at a range of 3% up to 10%, so it’s vital to shop around to get the best rate and the lowest payment cap that you can find. You might have to use your phone’s calculator a little, but if you are patient and do the math, then you could build an excellent scenario for yourself.
A career that you love and if you don’t make as much as you want to start with, then your loan is at a rate much lower than a private loan and if you are wildly successful, then you might pay double, but your still at the start of an incredibly lucrative career.
ISA’s aren’t for everyone and they are limited to certain career paths, but if you’re ambitious and have your career path already mapped out, then an ISA might just be a perfect fit for you!
Finding Your Education – Private Lenders and ISA’s With a Good Reputation
In this section, we’ve compiled a list of private lenders and ISA providers that can help you to get the most reasonable terms if you have no credit or bad credit. We’ve compiled 2 lists with 4 providers each and we’ll tell you a little about them in the sections that follow, so that at the very least you have a good starting point to go with.
Remember – it’s not a race – so we encourage you to use these as a starting point and to also employ your Google-Fu to find some competitors so that you can find the absolute best interest rates or income percentage rates with your lender of choice.
It takes a little time, but your diligence can literally save you thousands of dollars that you could invest savings, a stock portfolio, or a nest-egg towards your own business, so don’t short-change yourself now. Take your time, be patient, and get the best loan or ISA that you possibly can, to start you future the right way!
4 Private Lenders for Bad or No Credit
If you’ve been turned down for a private student loan, then make sure that you have tried the providers which we have listed below. A lot of times the sheer number of providers out there can make things a bit confusing, but each provider listed here has a good reputation and might just be your ticket to the education you are looking for.
We’ll tell you a little about each so that you’ll have a good idea at which institution might be the best match for you!
Ascent Independent
If you have no credit at all of very little credit to your name, then Ascent might be an excellent fit for obtaining your private student loan. Funded by the Bank of Lake Mills, Ascent offers cosigned private loans, non-cosigned loans, and also income-based non-cosigned options that can help you to fund your education.
APR on these loans is available at a fixed rate of 9.50-14.75% and there are variable APRS in a range of 7.44-13.30%, and they also offer a discount for automatic payments that can save you a little here and there when you’re paying off your loan. You can visit Ascent to find out more!
A.M. Money
While they service a limited number of schools around the country, Chicago-based provider A.M. Money offers some seriously competitive interest rates for those who are eligible. A.M. Money is one of the best options if you have no credit or your credit is a little shaky, and they offer a fixed APR range of 7.53 – 8.85%!
You’ll need to be an American Citizen or a Permanent Resident and you’ll also need a GPA of 2.8, but if you meet those basic eligibility requirements then it’s a good idea to visit A.M. money to see if one of the schools that they cover is of interest to you and to begin the application process.
Funding U
Funding U is another option for those with bad or no credit and while they do perform a credit check, they won’t be factoring in your FICO score. That means that your going to get a fair shake based on a more detailed analysis, rather than simply ‘scored’ and turned down based on your FICO alone.
Funding U specializes in non-cosigner loans and they have fixed APR rates of 7.49 to 12.99%. The application process is quick, typically taking a matter of days to process, approve, and get the funding to your school, so if you haven’t heard of this company before then be sure to check out their website to get a little more detail on exactly how they can help!
MPOWER
For those international students out there who are looking for a private loan, MPOWER is one of the best options out there. Offering loans from as little as $2001USD up to $100,000USD, MPOWER provides non-cosigner loan at fixed-rates ranging from 6.49 to 14.9% APR, and no credit history, collateral, or cosigner is required.
They even offer Visa support and Career planning assistance and they service over 400 schools in the United States and Canada. You can learn more about MPOWER to get the ball rolling if you like what you’ve heard so far!
4 ISA Providers for Good, Bad, or No Credit
Depending on your chosen field, a private education loan in the form of an ISA might be a better fit for you, and so in this section we’re providing you with 4 excellent providers that you can check out in order to ‘shop around’ for the best student loan option available. Let’s take a look!
Edly Private Student Loan
Our first Isa listing is for Edly Private Student Loan and they offer ISA’s that don’t require credit history or a cosigner. You may borrow $15,000 per year or $25,000 total and repayment begins when you are making a minimum of $30,000 per year. Repayment is set with a cap of 2.5 times what you have borrowed and the repayment time is a period of 60 months/5 years.
For a prerequisite, you need to have been in school for at least 2 years, as freshman and sophomore applicants are not accepted. While this is not a good solution for funding a ‘full ride’, if you already have 2 years under your belt, however, then this can help you to borrow enough to make it to the ‘finish line’ and give you time to hit that 30k mark of income and start working your way up in your chosen career path. You can read more about Edly here.
Stride Funding
Stride offers ISA’s with no cosigner required and there is no minimum FICO score requirement. Your income percentage rate can be as low as 1% to as high as 15%, and the repayment terms are available in 5 and 10 year plans. Funding plans are available so that you may borrow anywhere from $2500 to $25,000 per year for a maximum period of 2 years, or up to $50,000 per student.
Your payment cap with Stride is going to be 2x what you have borrowed, and you won’t have to pay until you are making a minimum of $30,000 annually. You can learn more about Stride here.
Defynance
Defynance has an interesting innovation with their ISA’s that might interest you. Rather than a 2.5x payment cap standard, they have their own system where your payment cap starts at 1.1x and adds .1 for every year. As far as your minimum income, anytime it falls to less than $2000 per month then your payments will be paused, but to determine your income percentage they use a proprietary algorithm, so you’ll need to check the website directly to see what plans might be available for you.
Visit Defynance to learn more and apply to see what they have to offer.
Align Income Share Funding
Align is a one of the rare ISA providers that doesn’t care what your major is and as they are a little different from the ‘pack’, we’ll explain a little more about what they do to give you a good idea of how it works. With Align, you may borrow $1500 to $12, 500 per year, with a payback period of 2 – 5 years and an income share percentage of up to 10%.
They do not have a minimum salary requirement for payback, nor do they have a cap, so this is important to note. Unlike the other ISA’s that we have listed here, Align doesn’t specifically bill themselves as a personal education loan—rather you can use the loan for your education, housing, or anything else that life throws your way.
You do, however, have an option to ‘buy out’ of your contract if your income changes substantially. As there is no cap with this specific ISA, you’ll need to be careful how much you borrow, but for ‘filling in the gaps’ for textbooks, supplies, or emergencies that crop up, this is an excellent resource that can certainly help. You can learn more about Align here.
Private Loans With Bad or No Credit Are Definitely Available!
In this article we’ve taken a closer look at private student aid options and they have definitely evolved. There are indeed private student loans that will accept those with no credit or bad credit and new forms, such as Income Share Agreements are also there that can help you with a full or partial run through eligible colleges and career paths.
Just remember to take your time and see what is available. You never want to take the first offer without seeing what else is out there – rushing things is a sure way to lose a lot of money. That said, with a little care and the resources that we’ve shared today, if federal loans are no longer an option then you are by no means helpless.
As they say, where there’s a will, there’s definitely a way! So, what are you waiting for? You’ve got a future to plan and we wish you the very best!
References
Trinkiobee; “How to apply for student loans with bad credit”
https://trinkiobee.com/how-to-apply-for-student-loans-with-bad-credit/
Fox Business; “Best Private School loans for bad or no credit”
College Whale; “How to get a student loan with bad credit”
https://collegewhale.com/how-to-get-a-private-student-loan-with-bad-credit/
Nerdwallet; “8 Student Loans for Bad Credit or No Credit”
https://www.nerdwallet.com/best/loans/student-loans/bad-credit-student-loans
College investor; “Best ISA Providers’
https://thecollegeinvestor.com/37365/best-isa-providers/
Bankrate; “What is an Income Share Agreement”
https://www.bankrate.com/loans/student-loans/income-share-agreement/#what-is
Rand.org; “Income Share agreements -what’s risky and what’s promising’
https://www.rand.org/blog/2019/06/income-share-agreements-isas-whats-risky-whats-promising.html