A bad credit loan could be a viable option if you can’t get approved for a loan through a bank, credit union or borrow the money from friends and family.
It’s relatively easy to apply, and most lenders issue quick lending decisions. The interest rates can reach up to 36 percent on both unsecured and secured bad credit personal loans or well into three-digits for payday loans and cash advances.
Not all loan options are the same, though. Before you apply, look into how to choose the best bad credit lender.
What is a bad credit loan
A bad credit loan is a personal loan that caters to credit-challenged consumers. You could also qualify for a bad credit loan if you have little or no credit history.
Bad credit loans generally do not have restrictions on how the funds can be used. Some borrowers cover financial emergencies, medical expenses or make costly home repairs. Others use the money to consolidate debt or however else they see fit.
These loan products typically come with high interest rates because they are risky for the lender. But the interest rate on most bad credit loans is fixed, so the monthly payment amount won’t change. Loan proceeds are dispersed in a lump sum and payable in equal monthly installments over a set period.
Payday loans and cash advances are alternatives to bad credit personal loans. However, the interest rates and fees tend to make these loans very risky options.
Types of bad credit loans
There are four primary types of bad credit loans.
You’ll need collateral to get approved for a secured loan. However, the rate will typically be lower than what you’d get with an unsecured loan. Your lender can seize your asset and sell it to recoup their losses if you default on the loan.
These loan products are also easier to qualify for if you have bad credit. Still, they should only be used if you can comfortably afford the loan payments.
This loan type is preferred if you need a bad credit loan. You won’t need collateral to qualify, and you could be eligible for a sizable amount. The downside is your interest rate will be higher with a lower credit score.
Consider scoping out online lenders. They tend to have more flexible personal loan options for borrowers with bad credit than traditional banks and credit unions.
A payday loan can be used as a last resort if you can’t qualify for a personal …….