What Is a Personal Loan?
Mortgages are loans for buying houses. Car loans are for just that - buying a car. And many other loans involving investments, big-ticket purchases, and myriad other purposes are designated for a certain use. All other loans are called Personal Loans. The funds received can be used at the discretion of the borrower. Personal loans for those with bad credit are available as secured or unsecured. Usual amounts for these loans range from $100 to $1,500. However, depending on certain factors, borrowers and lenders have been able to work out plans where much larger sums are dispensed.
Unsecured vs. Secured
Unsecured personal loans for those with bad credit are backed only by the signature and promise of the borrower, usually at rather high interest rates. Secured personal loans for those with bad credit are backed by collateral such as real estate, such as a home, stocks and bonds, and other valuable property, even a late model automobile. The interest rate on these loans are rather moderate due to the security. The lender can seize the property and sell it to cover the cost of the loan.
Traditional Lenders vs. Private Lenders
Credit unions, banks and other traditional lenders do not usually make personal loans for those with bad credit. These institutions usually require some previous relationship such as accounts or certificates of deposit, a good income and a low debt load, plus squeaky-clean credit. Private lenders do not lean on credit reports as the final decider on granting a loan.
Competition Is Good
Collateral is not a requirement, but it can be offered should the borrower choose to do so for lower interest rates. Lenders have stepped in to grant personal loans for those with bad credit, a gap left by traditional lenders. Competition is healthy and the borrower should be able to pick and choose to find the lowest interest rates and the best repayment terms. The most effective shopping venue is the internet. Many private lenders have set up shop online making it very easy to survey the offerings of many companies.
Check Your Income, Debt Load and Credit Reports
When pondering the feasibility of securing a personal loan for those with bad credit, you need to do a budget check. A lender will not lean so much on your credit reports, but will take a good hard look at your income and your debt load. Lenders want to be sure you have the wherewithal to pay on a loan after you have paid your other necessary obligations every month. Your credit report will help the lender set interest rates. The worse the scores, the higher the interest. You should pull your reports and make sure they are as clean as possible, because errors are not uncommon.
Putting the Money to Good Use
Many borrowers are tired of having a bunch of pesky bills, such as credit cards or other little loans, and choose to pile all those bills into one. This usually lowers interest rates and payment amounts to less than the aggregate of the old loans. Other options for using your personal loan for those with bad credit could include:
- Catching up on past due bills.
- Emergencies like prescriptions or car repair.
- Improving or refurnishing your home.
- Educational fees, tuition and other costs.
- Even a much needed vacation.
One Last Good Word
By taking a personal loan for those with bad credit you can start working yourself out of the bad credit designation. Paying off the loan on time and in full will do much to start moving your credit scores into more acceptable zones.