Bad Credit Loans
All about bad credit personal loans
Bad credit loans are financial products which are exclusively available to people with uneven credit histories. While banks and credit unions typically do not approve customers with bad credit for loans of any kind, other private financial and lending institutions may do so, though you should be aware that these loans come with much stricter repayment terms and penalties if you default.
How to Qualify for a Bad Credit Loan
While it is possible to get a bad credit loan even if you have an exceptionally low credit score, lenders usually offer more favorable terms to clients with better credit. This is because lenders determine the terms of the loans they offer by assessing the risk presented by the borrower; the greater the risk the lender takes, the greater their reward has to be. People with higher credit scores present less risk, and therefore enjoy better terms on bad credit personal loans.
Thus, it's in your best interests to do all you can to improve your credit score before applying for a loan. It's also worth noting that if you have a loan application rejected, it will negatively affect your credit score. Thus, if you're seeking a loan for people with bad credit, it might not be a bad idea to contact the lender before you apply to get an idea whether or not you'd be approved with your current credit rating.
Defining Features of Bad Credit Loans
As with personal loans offered by banks, there are two basic kinds of bad credit loans: secured loans and unsecured loans. Secured loans are those which require you to offer the bank or lending institution collateral. If you get a bad credit home loan, for example, your house will be held as collateral. Unsecured loans don't require collateral; they are rare in the world of bad credit loans, and any unsecured bad credit personal loan you get will only be for a small amount of money.
Generally, bad credit loans are only offered at high interest rates – much higher rates than you'd pay if your credit was in good standing. Lenders also impose very strict conditions on bad credit loans; you'll lose your collateral more easily if you default than you would if you had good credit.
However, loans for people with bad credit do have one huge benefit: they give you a chance to improve your credit rating. If you're responsible about your handling of the loan payments, you'll prove your creditworthiness anew.