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Getting a personal loan with bad credit typically means having a credit score that is below the average value or 580. In such a scenario, finding the best option for finance can be a daunting task, but with the right move, there are still several secured options that can be availed by bad credit borrowers. To decode your path to bad credit personal loans, this article explains everything you need to know about finding a personal loan and things that should be done for faster approval.
But, before diving into the process, let’s know more about bad credit personal loans and the difference between secured and unsecured personal loans.
What is a bad credit personal loan?
Bad credit represents the low repayment ability of an individual, which is why borrowers having poor credit scores are often restricted to a limited number of options. Personal loans that are provided to individuals with bad credit can be broadly classified into two types- (a) secured bad credit personal loan and (b) unsecured bad credit personal loan.
Secured Bad Credit Personal Loan: Just the name suggests, to avail this bad credit personal loan the borrower must offer an asset as a form of security. Common assets that can be utilized for the purpose include home equity, vehicles, or almost anything that has a certain value.
Unsecured Bad Credit Personal Loan: This is usually a short term loan, where the borrower does not have to provide any sort of security. Many pay lenders offer loans to applicants with bad credit, but since the risk is high, the loan often comes with a higher rate of interest.
Things to Consider before you Choose a Bad Credit Personal Loan
Prior to committing yourself to a bad credit personal loan, there are certain important factors that should be taken into consideration. Because, either in case of secured or unsecured loan, if you are unable to repay then the consequences do turn out to be adverse, so make it a point that you:
- Borrow strictly according to your budget, and avoid applying if you think that you will have issues while repaying the loan.
- Carefully evaluate the terms and conditions of the personal loan, to check the total fees and charges that you have to pay for availing the loan.
- Avoid going for any kind of additional such as insurance unless you have undergone the product disclosure statement (PDS).
- Focus on the term of the loan, as a shorter-term would mean higher repayment and this, in turn, leads to minimal interest. Hence, a loan with a short term can help you save on the interest rates.
Is there any eligibility criteria for bad credit personal loan?
As seen in almost any type of loan, to borrow funds using bad credit personal loans the individual must meet minimum eligibility criteria such as must be above 18 years of age, should have a valid proof of citizenship, and must have a regular source of income. There are many more details that the lender would require in instances where you want to secure the loan with collateral.
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