Bad credit loans, or loans for people with bad credit, are actually just personal loans with high interest rates. Because credit history is used as a predictor of future payment behavior, loan companies charge higher interest for consumers with less than perfect credit. Companies offering high-risk financing believe every consumer, regardless of the past, deserves a second chance. For every financial situation, there is a loan product that offers the right terms for both parties.
Personal Loans for Bad Credit
There are several types of loans that lenders make for consumers with bad credit. These range from high interest long-term loans for homes and autos, to short-term “payday” loans from loan stores or online loan centers. Though each of these bad credit loans may differ in specific loan terms, both are structured to meet the needs of borrowers with less than desirable credit histories.
How to Get a Loan with Bad Credit
Consumer credit scores play a large role in obtaining financing for homes, autos, and other personal expenditures. Often those with poor credit ratings will be placed in high-risk categories by conventional lenders including banks and credit unions. This makes it more challenging to get a loan with bad credit. Generally, credit score ranges are used as guidelines for lenders when deciding who should get a loan, and what interest rates to assign.
Loan applicants with bad credit and the lowest scores receive the highest interest rates the company allows. If credit scores are too low however, consumers may have to seek alternative financing from a loan center or finance company that makes high-risk personal loans for people with bad credit histories.
If you fall into this category:
- Shop around for a lender willing to make loans for consumers with less than desirable credit. Start with banks and finance companies and then search online for “bad credit personal loan”.
- Be clear with the lender about your reasons for borrowing money. This is important since a loan for an auto for example, can be secured. This makes the lender’s decision easier since the car can be held as collateral, to be repossessed and sold in the case of default. Interest rates will also be better than a loan that’s unsecured.
- Examine the terms of the loan carefully. Compare interest rates and check any fees, charges, closing costs or penalties. When looking at more than one bad credit loan product for comparison, be sure loan terms are identical.
- If after examining many, “bad credit loans” you cannot get a loan with favorable terms, consider repairing damaged credit and applying for a more conventional loan later. You can start this process by obtaining information and a free credit report now,
Bad Credit Personal Loans Guaranteed Approval
Some loan companies guarantee consumers loan approval for personal loans, despite having bad credit. Generally there are two scenarios where loan approval is guaranteed. In the first scenario, the borrower owns a home. Bad credit lenders are willing to lend money up to the amount of equity found in the home if they can use it as collateral to secure the loan.
Personal Loan Bad Credit
In the second scenario, borrowers can obtain small short-term loans such as “payday” loans that are unsecured. These types of loans with bad credit carry very high interest rates, (300-900%) but are available for emergency situations or times when quick cash is needed immediately.
Because of the economic downturn in recent years, more and more lenders have created loans for people with challenging credit. The borrowing and lending industry now offers a full range of opportunities for consumers regardless of credit history. While it’s true that having a clean credit report with high credit scores will get you the best deals on loans and credit products, there are still good options available in the lending market for bad credit.