What You Should Know about Unsecured Bad Credit Personal Loans
Your credit score is a major deciding factor when you go about applying for an unsecured loan. A score of under 600 is reason enough to be turned away by banks and lending institutions. It is no doubt a challenge to find unsecured loans for people with bad credit. Banks and traditional financial institutions seldom entertain borrowers who have poor credit scores. But there are many lenders who offer such borrowers unsecured loans.
Understanding Unsecured Poor Credit Loans
An unsecured loan is not offered against collateral and the only assurance the lender gets is the borrower’s personal promise. Unsecured loans are risky from the lender’s point of view, which is why they come with higher rates of interest. If you are a poor credit borrower, then you may have to pay a higher rate, though other factors like income and job history also play an important role in deciding the rate.
Also, the amount of money that can be obtained thorough an unsecured personal loan is less and people with bad credit scores are typically offered smaller loan amounts. However, the loan amount approved varies across lenders and you will find those willing to offer substantially large amounts despite your bad score.
The most important factor that decides whether a borrower qualifies for an unsecured personal loan is his ability to repay the loan amount. You must have a steady income to be able to make regular monthly loan payments.
Although smaller loans are easier to obtain, larger loan amounts are available with more restrictive criteria. The repayment period can range from a few weeks to several years and in some cases it can extend to as much as five years.
Lenders may not always lend the amount you ask for. It is advisable that you take whatever the lender offers and make payments on time. This will help you build your credit score and you can apply for a bigger loan in a few months’ time. Payday loans come under the ambit of unsecured loans for people with bad credit.
When to Opt for an Unsecured Bad Credit Loan
It is advisable for poor credit borrows not to go for unsecured loans for all financial needs. Unsecured loans are meant for emergency situations, such as paying towards medical costs, education fees or other justifiable expenses.
Even when you are going through a foreclosure, you can opt for an unsecured loan to fund expenses related to relocation. Poor credit borrowers with steady incomes can also consolidate their debt by taking out such unsecured personal loans.
You can obtain an unsecured personal loan without much difficulty for up to a certain minimum amount. But if you want a higher loan amount, say about $15,000, you may have to improve your credit score or choose the other alternative i.e. a secured loan by pledging your home/property as collateral.
Unsecured loans for people with bad credit can help you tide over financial difficulties. But make sure you weigh your options carefully before opting for such a loan.