Bad credit loans are loans that are disbursed to people who have a poor credit score. When a person has a poor credit score, it means that they have a history of defaulting on their loan payments. People with bad credit score find it extremely difficult to secure loans. This is because most financial institutions consider lending to them a high-risk venture. If you are finding it difficult to secure a personal loan because of poor credit score, you are in the right place; we will provide you with comprehensive information about bad credit loans.
Types of bad credit loans?
Bad credit loans may be unsecured bad credit loans or secured bad credit loans. Unsecured bad credit loan is where borrower signs the loan agreement and promises to repay the loan under the terms and conditions laid down in the loan agreement. On the other hand, a secured bad credit loan is where the borrower uses his or her valuable item such as a house, car, or even jewelry as collateral to secure the loan.
If you are unable to repay the unsecured loan, the lender can pursue their legal rights such as using collection agencies to recover the loan amount and the accrued interest. If you fail to repay a secured bad credit loan, the lender has all the legal rights to seize and sell the collateral to recoup the loan amount and the accrued interest.
Advantages of bad credit loans
- You need not worry about your credit score
The problem with conventional loans is that they peg the loan approval on your history of loan payments. That means that as long as your credit score is poor, it won’t matter your financial status may have changed for the better, they’ll still deny you credit based on your history. The goodness about the bad credit loans is that the lender is not interested in your history but only your ability to pay the loan. Hence they do not bother even looking at the credit reports.
- Easier to get loan approval
Getting approval for conventional loans is not easy, and the process is rigorous. They ask lots of information, and they may take a long time before approving your loan. In the case of bad credit loans, as long as the lender is convinced that you can repay, they go ahead and approve the loan. The approval rate of bad credit loans stands at between 80 and 90 percent. drcredit.com has some of the quickest bad credit loan approvals.
- An opportunity to improve your credit score
Once you get an approval for a bad credit loan, you can pay timely and improve your credit score. It is an excellent strategy for improving your credit score.
- You can borrow large amounts
Provided you show the ability to repay, you can borrow large amounts of money in a short period. Getting conventional loans approval for large sums of money is not easy.
Disadvantages of bad credit loans
- High-interest rates
The most significant drawbacks of bad credit loans are that they attract high-interest rates. This is because the lender knows that you have a history defaulting and so they need to cover themselves.
- You can easily get scammed
Scammers are aware that most people who search for bad credit loans are desperate for cash and likely to jump on any financing deal that comes their way. If you decide to go for a bad credit loan, you should only deal with reputable lenders. You can search for online reviews about the lender to find out about their reputation.
Bad credit loans are an excellent option where you have a bad credit score. You can use the loan to rectify you score and regain the ability to borrow. However, be ready to pay high interests.