Deciding to take out a loan is not a decision that should be made lightly. There are so many factors to take into consideration and if you have poor credit, then the decision is even bigger than if you had a stellar credit report.
In all honesty, not everyone has the perfect credit report and many people go through some financial hardship at some point, a hardship that remains on their report for years restricting what they can and cannot do and whether or not they can apply for a loan and be successful in their application.
There are two main types of personal loans that you need to be aware of, both of which are possible with a bad credit report. The first is secured and the second is unsecured. Both offer advantages and disadvantages.
Secured loans are often preferred by lenders because they reduce the risk to the lender. These personal loans are usually offered for larger amounts, maybe you want to do some renovations to your home or build an extension on your existing property. They require security, this usually means putting your home up as collateral.
The advantages of a secured loan are that because your home is used as security, your interest rates tend to be lower. You pay the loan back in monthly repayments, which can be fixed or not. Be aware if you choose this loan and don’t fix the repayment amount, the repayments could increase or there could be a lump sum payable at the end of the loan agreement.
The disadvantage to secured loans, whether you have a poor credit history or not, is that should you be unable to repay the loan for any reason, there is the possibility of losing your home, which will be sold to repay the amount you owe. This is not a situation anyone wants to find themselves in.
Bad credit unsecured loans are the leading choice which eliminates the risk of losing your home and reduces the risk to you, while increasing the risk to the lender. With unsecured loans you get offered a loan at an agreed repayment amount, you make regular monthly payments until the loan is paid back.
Bad credit unsecured loans don’t require any security and are offered on smaller amounts, usually up to around $10,000. While these loans offer a higher interest rate, they do reduce the risk to you and the risk of losing your home should you miss a payment or two.
As with any loan, whether you choose secured or unsecured, you need to take some steps before applying. Often you choose a personal loan because you need urgent cash that you don’t have available in the bank. Banking institutions these days make it exceptionally difficult to secure any loan, they expect you to have cash in the bank and a stellar credit report. There are lenders online that will help you get the funding you need even with a bad credit history.
Before deciding between the two types of loans available, it’s a good idea to get your hands on your credit report and see if there is any way of improving it before you apply. If not, then consider how the repayments of a bad credit unsecured personal loan will affect your monthly budget and ensure that you can repay the amounts each month without going into default.
Going into default will only leave you with even more money you have to pay and more bad news on your credit report, which is the last thing you want.