Bad Credit Personal Loan
Getting things you need, buying a house or a car, or even consolidating debt can be difficult if you have less than perfect credit. However, you may qualify for a bad credit personal loan that can help you get back on track.
There are two types of bad credit personal loans: non-secured and secured. Either type has its advantages and disadvantages to both the lender and the borrower.
A non-secured bad credit personal loan means that when you take the loan out you do not need to put up collateral. The bank or other lending institution relies solely on your promise to pay back the money. Should you default on the loan, the only way that the lender can get their money back is through a collection agency. Since the risk is much greater to the lender, interest rates for the loan may be much higher than they would be for a loan for someone with good credit.
Something is pledged as collateral when you take out a secured bad credit personal loan. This is most often a house or car, though any item of high value can be used at the lender’s discretion. If you fail to pay the loan back, then the lender can claim the collateral item and sell it to pay off the outstanding balance on the loan. Since the lender is guaranteed some form of repayment, the borrower can often get their money at a lower interest rate than with a non-secured loan.
Since borrowers can usually get the most money at the best rates with a secured bad credit personal loan, this type of loan is the one that is often offered. Finding out more information on this type of loan may make understanding the process easier.
The biggest issue with getting a secured bad credit loan is deciding what to put up for collateral. If you have an automobile or piece of real estate available, these are often the best choice. Keep in mind that the higher the value of the collateral the more money you will be able to borrow and/or the better interest rate you will receive. In most cases, the borrower is able to keep the car or house while the loan is being repaid, but the lender will have control of the deed or title and a legal claim to the property.
Once you have received a bad credit personal loan, one positive aspect to it is that you can use it to turn your credit history around. Consider your bad credit personal loan your “second chance” at good credit. You can show lenders that you are serious about getting your credit turned around by making your payments fully and on time and paying the loan off early if allowed. Plus these positive marks on your record will help clear away past mistakes, improving your rating. A better rating means that down the road you will qualify for better loans with better terms the next time you need to make a purchase.