When a person is looking for funding, they may be thinking about getting a loan. For those who have poor credit, a loan may seem like an impossible task. However, getting a loan with bad credit may be possible! This is because generally, there are two kinds of loans out there: secured and unsecured loans.
Secured loans are loans that have some type of asset for security—such as a house. An unsecured loan does not have an asset involved with the loan. For those with bad credit, a secured loan may work as long as they have an asset to offer in exchange for the loan. Here is more information on secured loans for those with bad credit.
How Can a Person with Bad Credit Get a Secured Loan?
Most people know that loan lenders check credit history and give funds based on a person’s credit score. A high score is more favorable because it gives lenders security and a sense of the potential borrower’s established financial habits. So, when thinking about obtaining a loan, some may be curious as to why a secured loan is available for those with bad credit, while an unsecured loan is not.
Secured loans can be given out to those with bad credit because, the involved asset is usually around the same amount given out—removing the need to weigh in a borrower’s credit.
The Characteristics of Loans for People with Bad Credit
There are a few important details to look at when getting a loan tailored for those with bad credit. Here are a few loan characteristics that exist for people with bad credit:
High Interest Rates
Despite the security of an asset, these loans will usually come with high interest rates. So as a borrower, it is extremely important to make sure that the loans is affordable.
As mentioned above, these types of loans typically require an asset—usually this means a car’s title, a home, jewelry, etc. If the loan defaults, the lender does have the right to seize the asset.
The Loans are Short-Term (Usually)
Because of the high interest rates, these loans typically last a few months. So a borrower may want to consider that before taking out the loan.
Examples of Loans for Bad Credit
Here are a few kinds of loans that exist in the industry specifically for those with poor credit:
Auto loans are commonly known as car title loans. They involve the borrower offering their car’s title as collateral against the loan. Once the loan is paid back in full, the lender removes themselves from the car title and the borrower owns it once again. The great thing about these loans is that—most times—a borrower can still drive their car.
This is kind of loan is like a second mortgage. These are loans where a house is involved. Essentially, the value of a home will determine how much the lender will give the borrower. The borrower than repays the loan every month.
These loans work with a borrower’s paycheck—hence the name payday loans. These usually align with a borrower’s payday, so they have a length of about two weeks. Payday loans are usually a small amount (compared to other loans). The idea is that a borrower needs money just until they get their next paycheck. The borrower is then expected to pay back the loan in full when they get paid.
It is important to know that not all states allow for every kind of loan. So before seeking funding, it is important do so some research about your specific state and city, and the type of loan you are looking for.
Where Can I Go to Get a Loan with Bad Credit?
When looking for a loan with bad credit, or really any other kind of loan, a potential borrower generally has two routes they can take:
These types of lenders give out the loans themselves. Usually they are banks, private companies, and credit unions. They usually operate in-person and have a standard repayment rate. For those who prefer in-person interaction, these lenders may be the way to go.
These lenders do not give out loans themselves but instead work with a network of lenders throughout the country. Most of the time, they operate online or via phone—because of this they usually offer extended hours. For those who do not want to do research themselves, and do not mind online or over the phone interaction, indirect lenders may be a good option.
As the economy and financial situations change, the lending industry is also adapting to offer loans to those with low or unestablished credit. There are many funding options that borrowers with bad credit can choose from.
Whatever type of loan a person chooses, it is important that they know the characteristics that accompany loans for bad credit. Additionally, it is important to do some research on the specific kind of loan being taken out and the lender themselves.