When people are desperate enough they do desperate things. Getting personal loans with bad credit is something to do only when there is no other choice. Personal loans for people with bad credit are dangerous and can put you into further debt. The companies that offer personal loans for bad credit are often predatory and can make a borrower think they’re able to afford something when they’re not actually able to do so at all. In fact, many lenders only focus on the positive things regarding a bad credit personal loan, instead of really explaining the terrible things.
A personal loan is a loan that has only a signature to back up the repayment. It’s sometimes called a signature loan. Signature loans are one of the highest interest types of loans available. Unlike a mortgage or car loan, there is very little incentive to pay off a personal loan. Credit cards have interest rates comparable a personal loan, but often they have lower interest rates as well. Why is there a difference between a credit card, which also has no collateral, and a personal loan? Because a credit card borrower has the extra incentive to pay in order to use it again. And because it has no collateral, and cannot be used again, a personal loan often has the highest interest rate.
Bad credit personal loans not only have high interest, they often have enormous fees and very limited amounts. A bad credit loan is based upon a FICO score of 500-620. Anything below that and it’s next to impossible to find any type of loan, let alone a personal one. When a FICO score is that low it’s usually associated with poor payment history. Giving a signature loan to someone with a poor payment history is risky and, as the bank is taking a huge risk, they expect a huge reward. Therefore, they tack on fees and a high interest rate, sometimes as much as 30%.
The good thing about a bad credit personal loan is that if you’re able to get it and pay it off quickly, with no late payments or missed payments, you can improve your credit score significantly. The bank isn’t the only person taking a risk with this type of loan and as such, they aren’t they only one that reaps the rewards. There are other options to repair credit, which are much better for your pocket book!
A secured credit card is a much better option than a personal loan. With a secured card you can make a deposit to the lender which they hold as collateral. The card can then be used and reused during a 12 month period. The 12 months of timely payments will increase your credit score as well. You’ll also have the option of reusing the card in emergencies, unlike a personal loan.