Whether you are struggling with credit card debt, considering buying a car, or looking for some assistance to help you finance a purchase, a personal loan can be a great way to get the funds you need.
Personal loans do not require any collateral (house, car, assets) to receive a loan because they are unsecured loans. Although, if you are someone with bad credit, you may be less likely to qualify for an unsecured loan. Interest rates may also be higher for someone with poor credit, meaning you will end up paying the entire amount and then some, making it costly to pay off in the long-run.
Should you take out a personal loan with bad credit?
While getting a personal loan can be helpful for financial assistance in certain situations, it can be expensive for consumers with bad credit.
Before applying for a personal loan, you need to consider all the advantages and disadvantages to see if it will financially benefit you in the long-run. There are some key aspects to consider before applying for a personal loan with bad credit.
- Help pay off high-interest credit card debt: If you find yourself with debt with high-interest credit cards, getting a personal loan to pay them off could be beneficial. If you can find a personal loan with a lower interest rate than your credit cards this could help save you money in the long run.
- Help build credit score: Another benefit to getting a personal loan with bad credit is that it can help you boost your credit score. It can help your credit mix to have a diverse type of credit you are using. If you only have one type of credit, such as credit cards, getting a personal loan can help build your score.
- Don’t need collateral: Unsecured loans do not require you to put up collateral when applying. This can be a good choice for someone who does not have something to use as collateral (home, car, etc.)
- High interest rates: These loans will almost always come with very high interest if you have bad credit. This interest adds up and ends up making you may much more for the overall cost.
- Origination fees: In addition to this interest, most personal loans come with an origination fee that will cover the costs of processing the loan. This fee is usually around 3-5% of the amount borrowed. Depending on how much is borrowed, this fee can be expensive and is paid upfront instead of being paid over time.
- Does not allow part payment: Most personal loans do not allow for partial payment, meaning you will have to pay the entire loan period plus interest. The lender will usually not allow you to repay part of the loan early. Prepayment penalties may apply.
Consider an secured loan
If interest rates for an unsecured loan are too high, consider applying for a secured loan. A secured loan requires you to put up collateral to secure the amount you are borrowing.
Secured loans will usually have lower interest rates and are much easier for a consumer with bad credit to qualify for. They also will usually allow someone to receive a larger amount of money since they have collateral.
A secured loan can be a great option for someone with bad credit. It is important to note that with a secured loan, any deliquent payments may give your lender the right to repossess certain assets.
It is important to research your options when considering applying for a personal loan if you have bad credit. Finding a personal loan with lower interest can be beneficial for consumers looking for financial assistance.
If you are looking to get a personal loan, CrediReady can help. Our nationwide network of trusted and verified lenders work with borrowers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and get the money you need today!