Nowadays when it comes to lending, bad credit may not be an issue for inquirers. This is because the lending industry has all kinds of loans out there, even those specifically targeted for people who may currently have bad credit. So, when it comes to finding emergency funding, bad credit is not an issue.
Some may be curious about what kinds of loans are out there for those with bad credit and how to go about finding them. Here is more information on navigating the lending industry with bad credit.
What Kind of Loans are Available for Those with Bad Credit?
In the lending industry there are generally two types of loans:
These loans require an asset involved with the loan. This asset can vary, it can be a car, a home, or even jewelry. No matter what the object is—the loan tends to be around the same value as the asset involved.
Because of the asset, lenders do not need to check or factor in credit when giving out a loan. Instead, lenders will look at income and the borrower’s ability to pay back the loan.
These are the more traditional type of loans out there—and they don’t require an asset. With these loans, lenders do factor in credit because they want to protect themselves.
For those with bad credit, these types of loans may not be an option. With unsecured loans, lenders will look at income and the borrower’s ability to pay back the loan.
Types of Loans Where Bad Credit is Not an Issue
There are a few kinds of secured loans out there where bad credit is not an issue. Here are a few types of loans that may be options for those looking for funding:
- Auto Loans: These are loans where the borrower’s car is put down as collateral against the loan. Usually these loan periods are only a month long.
- Payday Loans: These loans are set up with the schedule of the borrower’s paycheck, and so usually only have a life of about two to four weeks.
- Home Equity Loans: These loans are like a second mortgage and rely on the value of the borrower’s home. These loans are usually a couple months long.
The Pros and Cons of Loans that Do Not Have an Issue with Bad Credit
Before considering a loan that doesn’t factor in bad credit, it may be helpful to know about the pros and cons that come with them. Here are a few to think about:
The Process for Determining Eligibility Can Be Easy
Because credit is not an issue for these loans, many people who have assets and a source of income are usually eligible. This range of eligibility is much broader when compared to traditional lending.
Funding Can Be Extremely Quick
Due to the lack of a credit check (which can take about three to five business days), once eligible, lenders can send out the funds right away. In addition, most lenders work with all kinds of money transfer services/retail locations (which are open late and on the weekends) rather than just banks. This means they offer even more speed when it comes to getting the money to their borrower.
A Large Amount of Funding May be Available
With these loans, because the value of the loan is largely based on the asset, the amount from the loan may be worth hundreds to thousands of dollars.
Everything May Be Done from the Comfort of Home
There are many lenders that operate online—and have the entire loan process set up there as well. Many times this means that a borrower does not need to leave their home for funding. For many people, this can be a huge convenience.
May Come With Extremely High Interest Rates
Even though there is an asset with these loans, lenders are taking a risk. High interest rates from lenders compensate for that risk—so before considering these types of loans, it is important to consider the interest rate and compare several lenders.
Research is Required
It is important to find a reputable and legitimate lender before giving them personal information. Most of the time, this requires some research that could take time. When it comes to traditional lending, it is usually major banks or companies that are already trusted.
May Not Offer In-Person Interaction
A lot of these lenders may operate online or over the phone. This means that an in-person interaction MAY not be a part of the experience. For those who value in-person interaction, this may be a con.
These Loans are Short Term
For those who may need a lot of time (more than a year) to pay back a loan, these types of loans may not be the best option. The average repayment schedule is only a few months long—although every lender is different, and some may offer more flexibility than others.
When it comes to finding extra funding, having bad credit may not be an issue anymore. There are all kinds of loans out there for people who have bad credit. Before considering acquiring one of these loans, it is important to understand what they require, along with the pros and cons. Once a potential borrower has that information, they can then make an informed decision of what kind funding best suits them and their finances.