For anyone affected by a bad credit status, it can seem almost impossible to get loan approval. But the good news is that, for everyone, there are options when it comes to getting unsecured loans with bad credit.
Of course, there is no way to get excellent terms on a loan when bad credit is part of the equation. Lenders will always increase their charges, and lower the loan limit. Also, getting approval without security is harder than getting it with security, though this certainly comes as no surprise.
But even though the cost of an unsecured loan is greater, the over-riding factor is that the funds are needed - often to begin the process of rebuilding credit reputation and improving the overall financial situation. So, the investment is worth the price in the long run. Still, there are three main options that should be considered.
1. Personal Loans
The first, and most obvious option, is to apply for a personal loan. But the problem is that getting unsecured loans with bad credit is not easy at all. Lenders are reluctant to accept the risk of loaning money to borrowers with a poor record in repaying their debts. But that does not mean that approval is impossible.
Typically, online lenders are more willing to accommodate bad credit borrowers, and have designed packages that best suit the needs of that niche market. Interest rates are kept to a competitive rate, but the term of the loan is usually quite long (up to 15 years). This keeps the monthly repayments low, but also increases the amount of interest paid over the lifetime of the loan. As a result, approval without security reaps good profits.
There is a limit to the amount of money that can be borrowed, of course, with sums ranging as high as $25,000. However, for larger unsecured loans a cosigner may have to be added to the deal to guarantee repayments even when the borrower is unable to make them.
2. Payday Loans
On the plus side, this is the fastest route to money needed. Getting an unsecured loan with bad credit can be a slow process, involving time spent convincing the lender that their investment is safe. But when a financial emergency pops up, speed is of the essence. These loans involve no credit checks, so credit histories are irrelevant.
But there are several negatives that need to be taken heed of. For one, while approvals without security inevitably mean greater expense, these loans come with interest rates of between 20% and 35%, depending on the lender. And the lifetime of the loans can be between 14 and 30 days.
The reason is in the name, with repayment in full taken from the next paycheck. Also known as a cash advance loan, the lender is only advancing cash from an upcoming paycheck. And the funds from these unsecured loans are limited to a maximum of $1,500 - enough to deal with an emergency, but little else.
3. Unsecured Credit Card
The third option is an unsecured credit card, but this should not be rushed into. Arguably, credit cards are the most troublesome financial option since so many people get into hot water very quickly with them. However, with the challenge of getting unsecured loans with bad credit, this can sometimes be the only option available.
Manage the card wisely, and be sure to repay the due sum at the end of every month. In this way, interest charges can be avoided, and with any approval without security, the interest rate will be higher - perhaps 15% to 18%.
It is a good idea to apply for a small credit line first, to ensure there is no great burden, then build slowly towards a larger unsecured loan from there.