People with low credit scores likely have substantial debt from different loans or haven’t consistently made payments. They may also have a short credit history or have recently gotten a new loan.
Bad credit is a massive problem for many. It makes it difficult for such borrowers to get the best rates and terms on car loans, mortgages, and personal loans. However, there are still options available to people with bad credit that they can take advantage of without going into too much debt.
For a bit of help, below are five types of bad credit loans to choose from.
Unsecured And Secured Personal Loans
Personal loans are either unsecured or secured. Unsecured personal loans are loans not backed by collateral, which are offered by online lenders, credit unions, and banks. Since lenders take on more risk when loans aren’t secured, interest rates can be higher.
That’s something to keep in mind before applying for an unsecured loan. But some lenders are more welcoming of applicants with bad credit. For example, poor credit loans from CreditNinja.com come with competitive rates and fast approval times.
However, if you default on the loan or stop making payments, your credit will be negatively affected. In such cases, lenders may pursue the debt through a court judgment, bear the financial loss, or seize the borrower’s assets without going through the legal process.
On the other hand, secured loans are protected by collateral. When you apply, the lender will want to know which of your properties or assets can be used to secure the loan. Then, the lender will place a lien on that asset until you pay back the loan in full.
If, for instance, you default, the lender will repossess your asset and sell it to recover the loss. Hence, ensure only to borrow what you can afford to repay with your current budget so your asset or property is not put at risk.
Payday Loans
Payday loans are short-term financing solutions for credit-challenged borrowers. However, these debt products generally come with high-interest fees because they are usually a quick fix for cash needs – often for $500 or less.
The most significant selling point of payday loans is that lenders won’t check your credit to issue the loan, and it’s easy to qualify if you have a job. Still, due to the steep borrowing cost, they should only be used as a last resort.
Also, note that payday loans must be repaid by the next payday or salary. Otherwise, you’ll face high fees if you extend the loan term. And this could lead to a vicious debt cycle that’s hard to escape.
No Credit Check Loans
As the name implies, these debt products don’t require a credit check. These can be helpful if you’re in a pinch and need cash now. The key is only to use them for emergencies. A word of caution: the interest rates on these loans are high. When all is said and done, you’ll end up paying a lot more than if you had been able to get a traditional loan.
Some lenders will extend the loan term on these products to give you a more appealing, lower monthly payment. But, note that this only means you’ll need to pay more in interest over the loan’s life. The lender will have more time to rack up interest from you.
Common examples of these loans include:
- cosigner loans
- auto title loans
- installment loans
Cash Advances
Cash advances allow you to pull money from the available balance on your credit card. Think of it as using your card to “purchase” cash or funds rather than goods or services. While a cash advance is easy and convenient, it can be expensive due to high-interest rates and other fees such as ATM or cash advance fees.
Only use a cash advance loan in emergencies when you have no other options. If possible, pay it back as soon as possible to avoid paying high-interest rates and fees on top of your emergency expense.
Bank Agreements
These loan products are small loans given out by banks to account holders. A bank agreement may be for you if you’re in a bind. However, remember that the policies vary from bank to bank and your financial profile. Call your bank to see if this is a viable option for you.
Final Thoughts
Got a bad credit score? Are you worried about not getting the loan you need? Well, don’t worry! There are plenty of loans that you can still get even if your credit score is low, from secured to unsecured personal loans, to payday loans, to no credit check loans, to cash advances, to bank agreements.
Please research before committing to any loan type to know what you’re getting into and make sure it’s worth it.
