What are Bad Credit Loans
It is a type of personal loan offered to borrowers that have weak, bad or no credit at all.
There are several types of loans and financial institutions that offer such bad credit loans:
- Credit Unions and
- Online Lenders
One of the characteristics of a bad credit loan is that they are generally expensive. This happens because lenders charge higher interest rates to borrowers that have bad credit as compared to the borrowers that have good credit.
A person that has a FICO (Fair Isaac Corporation) score below 630 is considered having bad credit. Below table will tell you more in detail about this. If you are unaware of your credit score, then you can get to know about it through your online bank account or credit card statement.
No cost portals like Creditkarma.com and Experian.com also provide you with a free credit score.
|550-629||Subprime / Bad Credit|
|300-549||Poor / Bad Credit|
Types of Bad Credit Loans:
In it borrowers sign a contract, making a promise to repay the loan as per the loan terms and conditions. Failing which, the lender may take the service of a collection agency or exercise his / her legal options to pursue the collection of the owed money.
Some of them are :
- Personal installment loans,
- Credit cards, and
- Student loans.
It requires the borrower to use a valuable item which could be a car, home or a piece of jewelry as collateral to secure the loan. This is done with an aim, that in case the borrower fails to repay the loan, the lender is legally allowed to seize the collateral and recover his / her losses from the proceeds received from its sale. Some of them are:
- Car Title Loans and
- Pawnshop Loans.