People with bad credit usually have their hands tied once it comes to getting money in forms of loans and lines of credit. Because borrowers with negative payment histories pose a high risk to lenders, many banks and lending institutions simply refuse to loan money to people with bad credit. However, there are a growing number of lenders, attracted by higher moneymaking opportunities in bad credit market, that are able to bad credit loans guaranteed approval underwrite loans specifically geared towards consumers with derogatory credit record. Higher interest rates and loan fees drive more lenders to consider lower credit scores for successful loan applications, often making good return on investment and getting a loyal customer base.
Bad Credit Loan Interest Rates and Charges
Borrowing costs, comprising of interest charges and loan fees, are significantly higher for poor credit borrowers when compared to consumers with good or excellent credit. Always being in double digits, interest rates on personal loans for poor credit often exceed 20% mark. Should you consider getting a poor credit loan, do not get surprised by higher monthly payments and inflated cost of borrowing. To avoid the disappointment, it is recommended to consider high borrowing cost as an investment into better credit, as bad credit loans help you rebuild the history of timely payments, driving your scores up, and making it easier to qualify for loans with better rates and terms in the future.
Bad Credit Loans Are Available For Any Purpose
Typically, personal loans for poor credit may be used for any purpose you desire. Most people take them out to finance large purchases, such as furniture, cars, or appliances, consolidate debts, or catch up on overdue bills and patch some holes in the budget. It is not recommended though, to blow the loan proceeds on something you do not need, as the price sticker you will have to pay is too high, due to higher loan charges.
Bad Credit Loans Types and Qualification Criteria
Like loans available to good credit borrowers, poor credit loans come in secured and unsecured forms. Secured loans, usually backed by the equity in the real estate that you own, are often the most convenient form of borrowing, as they feature lower interest rates and have lower qualification standards. A lien is placed on the property used as collateral in order to obtain a secured poor credit loan. While such loans offer better terms, they also pose a risk of losing collateral in case of a default. That is why unsecured personal loans for bad credit are getting increasingly popular.
Unsecured loans only require a signature of the borrower with collateral requirement waived. That is why they are commonly called signature loans. In case of bad credit, a cosigner with good credit is often required in order to obtain a signature loan. Cosigner serves as an additional layer of protection to the lender, as cosigning a loan comes with responsibility of loan repayment should a principal borrower fail to pay. Anybody could be a cosigner, and borrowers commonly ask their friends, parents, or relatives to cosign on a loan. It is noteworthy that should your credit only have minor blemishes or should the loan amount be small, a cosigner may not be required.