Financial difficulties have become so common in recent years, that personal loans with bad credit are now a standard requirement in the financial sector. There was a time, not so long ago, when an applicant with a bad credit rating was an applicant who had more than likely shown a degree of irresponsibility in their financial affairs. But that has changed now.
The sad truth is that, with so many people having lost their jobs, seen their companies downsized and investments, both commercial and personal, fall in value, the prevalence of bad credit scores can hardly have been avoided.
The issuing of personal loans despite bad credit has become normal practice amongst lenders, though there are clearly some measures taken to protect against the higher risks.
Loans for those with bad credit, for example, have higher interest rates, and there can be a lower limit set thereby preventing loans for personal use from getting too high, with $20,000 around the maximum available.
What is a Bad Credit Loan
A personal loan with bad credit is basically a loan that is issued despite the fact the borrower has a low credit rating. Under normal circumstances, a lender is unlikely to accept the risk involved, but there are a couple of factors that can convince them that issuing the personal loan, despite bad credit, will work in their favor.
The first factor that suggests approving loans for those with poor credit is a worthwhile move is the strong likelihood that the borrower is seeking a way to improve their credit score. These applicants are intent on making their repayments on time, and that is the kind of borrower every lender likes to do business with.
The second factor is that higher profits on lower sums issued, thanks to the higher interest rate on a shorter term loan. As loans for personal use, these tend not to be a large amount and because of the desire to regain financial credibility, borrowers like to repay in 12 or 24 months, not much longer.
Types of Personal Loans
It is worth remembering that when it comes to taking out personal loans with bad credit, there are two types available, namely secured and unsecured. The only difference between the two is that secured loans are granted on the back of collateral, and when considering loans for those with poor credit, collateral can be influential.
Not everyone has something to use as collateral, and the chances of getting unsecured loans for personal use are much less. However, it is not impossible. Lenders will assess contributing factors to a low credit score, and sometimes approve personal loans despite bad credit because the circumstances were related to irresponsibility.
Finding a Lender
Of course, who an applicant approaches for a personal loan with poor credit can dictate the terms of the loan itself, so it is important to shop around. A traditional bank is likely to charge high interest rates, but the online lender tends to offer better deals over all. This is principally to do with competition, with loans for personal use a huge aspect of the online niche market.
Part of their advantage then is being able to approve loans for those with poor credit, as it is these applicants that are generally refused by the banks. As part of the package, they also get a lower rate than the banks charge, and often a higher lump sum and longer repayment schedule. As personal loans with bad credit go, these deals are hard to beat.