Financial hardships are a part of life. Millions of people suffer from layoffs, divorce, or health issues that cripple their finances. As a result, a lot of people have had their credit damaged or ultimately filed for bankruptcy. But what happens when you get back on your feet and are in need of a personal loan to hold you over for a while? Unfortunately there are a lot of lenders who won’t deal with people with a bad credit history because they feel there’s a big chance of them defaulting on the loan. The bright side is that there are personal loans for people with bad credit available and you just have to know where to look. The two main types of personal loans are secured or unsecured. Depending on your particular set of circumstances one might be more of attractive than the other.
These are one of the most well known personal loans for people with bad credit. Unsecured loans are ones where the borrower does not supply any type of collateral and simply signs a contract stating that they will repay the loan within the specified time frame. The contract will outline the terms of the agreement such as the amount being borrowed, when and how the loan will be repaid, and what will happen in the event that the borrower defaults. Unsecured loans are probably the most high risk personal loans for people with bad credit since they’re not backed by anything other than the promise of repayment. Since they are high risks, they typically have the highest interest of any loan type. If the borrower happens to default on the loan, it will hurt their credit score even more and depending on the agreement the lender might seek legal action against you to collect the balance due. This makes unsecured loans a risk for both parties.
Secured loans are much less of a risk for lenders than unsecured loans because the borrower is providing a form of collateral to go along with the loan. The collateral can include almost anything of significant value that the lender will accept. Car titles, house deeds, gold, jewelry, antiques, and electronics of high value are all forms of collateral. Be careful when choosing what you use as collateral because if you fail to repay the loan, the lender may take possession of it. Obviously the goal is to pay back the loan to avoid losing your collateral but if you stumble upon hard times and aren’t financially able to pay off the loan you don’t want to make sure what you’re losing isn’t something you can’t function without. If you use your house as collateral you will be out of a home if you default, and if you use your car title you’ll be out of a vehicle. Since your loan is backed by collateral, you will generally have a lower interest rate than an unsecured loan. Don’t mistake this as meaning you will have a low rate however. Since you still have bad credit you will be paying a higher interest rate just like all personal loans for people with bad credit.
Secured loans are ideal for people who have something of value to back their loan. And they will give you a lower interest rate most of the time. Sometimes an unsecured personal loan might be the only option available. Whether you choose to go with a secured loan or unsecured loan, keep in mind that you will be paying higher interest rates and that your credit will not be back to normal overnight. It may take years to rebuild your credit history especially if you’ve filed for bankruptcy. Just make your payments in full and on time and you’ll be able to avoid higher interest rates in the future. Personal loans for people with bad credit will help you significantly when bouncing back from financial hardships.