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Secured and Unsecured Bad Credit Loans
24 Feb 2019

Guide to the Pros and Cons of Secured and Unsecured Bad Credit Loans

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In 2017, U.S. consumers had an average income (before taxes) amounting to $73,573.

That’s a lot of money right? It is. The thing is, their average yearly expenses amounted to $60,060.

Doing the math, they would still have some $13,500 left from their income. But the $70k + mentioned above doesn’t include taxes yet, as well as payments for loans. Nor does it include money spent on emergencies.

No wonder then that only four in every 10 Americans can deal with a $1,000 emergency. The rest doesn’t have enough money to cover the bills in such situations.

Unsecured bad credit loans can help you in such cases. Unlike traditional personal loans, credit scores aren’t a crucial eligibility factor.

Before applying, it’s best you know the pros and cons to these financial services though. That’s what we’ll cover in this post, so be sure to keep reading!

A Closer Look at Bad Credit

Which scores fall under “bad credit” depends on the credit score model. There are several, including FICO, VantageScore, Experian, Equifax, and TransUnion.

Here’s a quick look at the ranges of these scoring models:

  • FICO: 300 to 850
  • VantageScore: 501 to 990
  • Experian: 330 to 830
  • Equifax or TransUnion: 300 to 850

US consumers can have more than one of these credit scores. While they vary in range, they have similar guidelines on what is perfect, excellent, or bad. Also, FICO is the most common type of score, as it’s been in the industry the longest.

Under FICO, scores ranging from 750 to 850 are “excellent.” As of April 2018, 42% of US consumers had such scores. In fact, those with 800 to 850 comprised majority of scoreable individuals, at 21.8%.

Scores that are within 600 to 649 are already “poor” though. Anything below 600 is already a bad credit score. 28.7% of scoreable individuals have poor or bad credit scores.

Being one of the 43.4 million with bad credit greatly increases your odds of loan denials. In 2017, imperfect credit scores led to the denial of almost one in three mortgage applicants. While many of them still qualified for personal loans, they had to pay higher interest rates.

Don’t let these statistics discourage you though. If your current score is the only thing keeping you from a loan, it’s time to consider bad credit personal loans.

What Bad Credit Loans Are

Bad credit loans are loans designed for people with bad credit. Like loans for poor credit, you don’t need an outstanding score to qualify. How much you can borrow depends on the lender, but loan amounts range from $100 up to $5,000.

Secured vs Unsecured Bad Credit Loans

You can choose between secured and unsecured loans for people with bad credit.

Secured loans need you to surrender collateral, which is property or asset of value. This can be the title of a house or a car. Lenders consider this a “guarantee” that they can recoup their money in case of a loan default.

Although collateral can help you qualify for bad credit secured loans, it can be a risky venture. Defaulting on a loan forfeits your ownership to that piece of property. That means you’d have to turn over your rights to your house or car.

The significant benefit of a secured loan is that the lender does not need to look at your credit score at all. As the loan is based on the value of the collateral, these are real personal loans no credit check.

Unsecured bad credit personal loans don’t need these guarantees. Their lenders are more understanding, so you only need to prove you can pay them back. A bank account that has regular deposits made into it can be good enough for these lenders.

The Pros of Unsecured Loans for Bad Credit Borrowers

Not having to surrender collateral is already a good reason to apply for unsecured loans. But there are other reasons to consider these loans for people with bad credit, including:

Approval Despite a Spotty Credit History

Less-than-stellar credit scores are unlikely to get you traditional installment loans. Again, banks and credit unions consider your creditworthiness through your credit score. They use this three-digit number to gauge your ability to repay your debts.

If you have a poor or bad credit score, they’ll think right away you’ll have troubles paying off your loan. That means potential delinquencies or defaults. If they think they can’t get their money back from you, then they won’t lend you that money.

Lenders of bad or poor credit loans don’t think this way. What’s more important to them is your current financial status. Proof of a viable source of income is often enough for them.

That’s the biggest appeal of bad credit personal loans guaranteed approval. You don’t have to worry about getting denied due to your credit score. You can even use the loan to rebuild your credit, so long as you make your repayments on time.

Shorter Terms than Traditional Loans but Longer than Payday Loans

Some still get approved for a traditional loan even with bad credit. But there’s a huge catch in these (rare) cases: exorbitant interest rates. What’s more, many of these personal loans take years to pay off.

So, not only do you have to pay a lot more for interest, you’ll be in debt a lot longer.

If you only need a small amount to tide you over until your next paycheck comes in, consider a bad credit payday loan. These small and short-term (paid after two to four weeks) loans can help you cover minor expenses. These can be an almost overdue utility bill, medications, or even stocking up the fridge with food.

Some personal loans for bad credit borrowers offer a bigger loan amount too. They have repayment terms longer than payday loans, which allows for easier repayment. Though lender repayment terms vary, most have six months (or longer) terms.

Many Lenders Offer 100% Online Application

Unlike traditional lenders, many payday loan online lenders have 100% online loan processes. From application to repayments, you can complete the entire procedure online. You don’t have to go to a brick and mortar office, fall in line, or risk bumping into someone you know.

It’s convenient and private, allowing you to conduct your matters in the comfort of your home.

Quick Application Status Update

Most banks need at least seven working days to process loan applications. That’s the best case scenario though, as many times, they can take weeks and even months. Worse, you’re not even sure if they’ll approve your loan.

If you have bad credit, you have a tiny chance of getting that “Congratulations!” message.

Whereas most poor or bad credit loan lenders will notify you of your application status within a day. Some in even only a few hours! You’ll know right away, whether they’ve approved you or not.

Instant or Guaranteed Approval

To get access to the money you need ASAP, apply for an instant or guaranteed approval bad credit loan. So long as you meet the minimal requirements, that money will be on its way to your bank account.

You need to be 18 or older and have a verifiable income source. Lenders will confirm this by checking deposits made to your bank account. Upon approval, they’ll wire the money to this bank account and get the repayments from here too.

You also need an active mobile phone, as the lender will call or text you for updates. Some lenders may ask you for a debit or a credit card as a form of back-up for the loan repayment.

Installment Loans for Bigger Loan Amounts

Medical emergencies, even with health insurance, can still cost thousands of dollars. For example, out of pocket medical costs averaged $1,124 per person in 2017. This is only the average, which means you may be facing even higher expenses.

bad credit installment loan can get you out of such a financial pinch. You can borrow bigger amounts with installment loans, sometimes even up to $5,000. Also, you’ll pay them back in increments, so you’ll have an easier time making your repayments.

A Way to a Better Credit Score

Some types of loans for people with bad credit can help you polish your existing score. You can show off your ability to make repayments and always pay back what you owe on time. A score increase of even only a few points can already make you more creditworthy.

The Cons

While bad credit loans have many pros, they aren’t a miracle cure to your financial problems or bad score. They still have a few disadvantages, including the following:

Higher Interest Rates

Only people with great credit scores enjoy low loan interest rates. With a bad credit score, expect all types of lenders, whether bank or payday loan no credit check lenders, to charge higher rates. But online lenders can still charge lower than banks that lend money to bad credit borrowers.

Besides, there’s always the risk of not even getting any money at all from banks with bad credit. Why wait for weeks and still end up denied if you can get approved now?

First Time Borrowers May Have Lower Borrowing Amounts

Some lenders may also have set maximum loan amounts to first-time borrowers. For instance, you may only be able to borrow $300 – $500 for your first loan. But if you paid on time, you may qualify for a higher amount in your succeeding loans.

Not All Are from Reputable Lenders

Be as careful in dealing with online lenders as you are when shopping online. Read and understand the fine print, as some may have notoriously-high hidden charges. Verify the legitimacy and credibility of the lender before sharing sensitive information.

The Risk of Unhealthy Spending Habits

Since bad credit loans are so easy to qualify for, it can be tempting to keep taking them out. Unless you have the absolute need to, you shouldn’t rely on any kind of loan for all your expenses. Remember, your goal is to get out of a financial pinch, not dig yourself a deeper hole.

Must-Follow Tips When Taking Out a Bad Credit Loan

The most important: Always take time to shop around and compare your loan options! Especially when it comes to quick loan lenders, as there are over 5,000 more of them than McDonald’s. Back in 2014, there were 20,000+ payday lenders, while there were less than 15,000 McDonald’s branches.

Comparing lets you find lenders offering loans best suited to your needs. This also allows you to determine if their terms match your repayment ability. Even a 1% difference in interest rates can already save you a lot on interest payments.

Be sure to check other fees too, particularly early repayment. Some lenders may charge you a “penalty fee” for paying off your loan too early. Before signing an agreement, ask the lender about such surcharges and penalties.

Verify the due date of your loan repayments and never miss these dates. Being late for even one day can already cause your repayments to skyrocket. Aside from the interest rate, the lender may also charge you a late payment fee.

Remember, bad credit loans offer you an opportunity to rebuild your credit. So, pay your dues on time to prove that you are a low-risk borrower. This way, your credit score can go up, which can then help you secure loans at better rates in the future.

Start Your Search for Bad Credit Loans Now

Once you’ve decided unsecured bad credit loans are a good choice, next is to decide how much you need to borrow. Apply only for what you need and what you’re 100% sure you can repay on time.

To make your search easier and faster, use our loan search tool. You only need to enter the amount you need, and it’ll start looking for the best matches. From there, you can compare different bad credit loan offers from reputable lenders. Here are some other articles that might help:

The ultimate guide to no credit check gaming
Your guide to online installment loans with monthly payments
Are there payday loans available for SSI and other government benefits recipients?
Everything you need to know about personal loans for self employed workers