A lot of people believe that if they have bad credit, it means they aren’t able to get approved for a personal loan. This common myth is completely untrue and there are lenders who specialize in bad credit personal loans. Traditionally, people have looked at banks for loans but with the state the economy is in, banks have become less willing to approve personal loans to people especially if they have bad credit. So bad credit personal loans have become increasingly popular among for people who have suffered from financial hardships due to the down economy.
What are bad credit personal loans?
Bad credit personal loans are loans that are specifically aimed towards people who don’t have optimal credit scores. Traditional personal loans use the borrower’s credit score as a major determinant for approval, which prohibits a lot of people from qualifying. Bad credit personal loans focus more on the borrower’s ability to repay and their income more than their credit score. This is not to say that lenders don’t look at your credit score at all however. Some lenders take your credit score into consideration when figuring out how much interest you will be charged for your bad credit personal loan.
You can use your bad credit personal loan to pay for almost anything you would like. Some possible uses for your bad credit personal loan are car repairs, bills, a cheap used car, or other miscellaneous expenses. Since bad credit personal loans usually aren’t for extremely large amounts, you probably won’t be able to buy a new car or use it as a down payment for a new home. Typically bad credit personal loans aren’t approved for more than a couple thousand dollars, but can be for as little as a couple hundred. This gives great flexibility for the amount they borrow. And keep in mind that your income is taken into consideration when determining how much you’re going to be approved for.
There are two major categories for bad credit personal loans; secured bad credit personal loans and unsecured bad credit personal loans.
- Secured Bad Credit Personal Loans: These are personal loans that are backed by a form of collateral to secure the loan. Some common forms of collateral include car titles, house deeds, and jewelry. Since the loans are backed by collateral, they usually allow you to borrow more money than most bad credit personal loans. They also allow you to have a lower interest rate because the collateral lessens the risk for lenders.
- Unsecured Bad Credit Personal Loans: For people who don’t have collateral or don’t want to risk losing their valuable items, unsecured loans are an excellent choice. Unlike secured bad credit personal loans, unsecured loans simply require the borrower to sign an agreement promising to repay the loan. If the borrower misses payments, pays late, or defaults on the loan, there are usually fees that assess and ultimately it will affect the borrower’s credit. Since the loan isn’t secured, they usually have higher interest rates than secured personal loans.
Advantages of Bad Credit Personal Loans
The main reason bad credit personal loans are so popular is because your credit isn’t an issue for getting approved. One common requirement is that the borrower is employed and has the ability to repay the loan. So if you are in the process of rebuilding your credit and have a solid job, your chances of being approved for a bad credit personal loan are very good.
Getting approved for bad credit personal loans is also very simple. The entire process can be done online, and some lenders are completely paperless. This means you don’t have to fax or send any paperwork through the mail. Online transactions make the application much faster and more convenient since you can do everything from the comfort of your own home. Also, the funds are usually deposited directly into your bank account which gives you immediate access to your money instead of waiting for a check to come in the mail.
Bad credit personal loans are an excellent way to help you build your credit as well. As long as you are making all your payments on time and repay the loan on time you will start to see improvement in your credit score over time. People with bad credit have been using bad credit personal loans as a way to help rebuild their credit so it’s been proven to work effectively.