Personal loans, as the name describes, are meant for personal use. A personal loan establishes a consumer credit that is granted for day-to-day expenses on medical bills, education, home improvement, household purchases, and even on vacation and wedding, to name just a few here. As the rates offered are usually lower than what you are required to pay on using a credit card, it is an ideal option to pay off credit cards and consolidate debts.
The amount of loan granted may be big or small depending on your requirements and qualifications, but you cannot have it for business or for any non-personal uses. It is a short-term financing solution which typically comes with a high interest rate but an easy application process with fast and guaranteed approval in most instances. Despite the high interest rates, it may prove useful to meet urgent financial requirements, if you have enough income to pay off the loan.
A personal loan can be secured or unsecured depending on whether you have placed anything of value as collateral. Unsecured loans are secured only by your signature on a promissory note to repay. Moreover, a person with a bad credit history may find it tough to qualify at most lenders in the US. In most cases, a secured personal loan is the only option for such people.
However, there exist a number of direct lenders who have specialization in personal loans for poor credit. You may have to research enough to find the best deal available in the market. One can even find customized personal loans for students, military spouses, veterans and unemployed. You can use online resources to find lenders, compare rates, and calculate monthly payment. Personal loan calculator, which is also available online, is an excellent tool that allows you to generate the complete amortization schedule.
For most lenders, you must possess the following to qualify on a personal loan application:
You must note that the rates vary from person to person depending on income, credit score, and payment history. In most cases, you will find it easy and convenient to apply for a personal loan, even at big lenders like Bank of America, Chase Bank, Citibank, and Wells Fargo, if you have maintained a good credit score and have never fallen behind on payments or have never experienced bankruptcy.
There are options still left for people with poor credit, though they are not too many. As mentioned above, a personal loan can be secured or unsecured, which may also be available with a no credit check option at certain lenders.
A secured loan requires a borrower to put something of value as collateral, which encourages a lender to grant a loan application as the risk is minimized now. Banks require you to pledge collateral to guarantee repayment of the debt. This may be the only option when you are in urgent need of a fairly large amount of money. The disadvantages include the risk of losing the asset that you have pledged as collateral. This is so because a lien is created which allows the lender to sell the mortgaged property in case of nonpayment and make good the outstanding balance amount. The advantages include lower interest rates and better loan terms.
An unsecured loan does not involve using your home, car, or any other valuable object as collateral. This is the biggest advantage as you do not have a fear to lose anything in case you are not able to pay off completely. Such loans are a little difficult to get and useful only when you need a small amount of money. Moreover, the interest rates are generally kept higher as the risk is greater for the lender in this arrangement. The interest you pay is not qualified for obtaining tax advantages.
If you have ever been declared a bankrupt, chances are that you won’t find too many lenders willing to lend you money. If you are seeking a loan within two years of bankruptcy, you will certainly find none catering to your need. Once this period is over and you have maintained a regular income, things will change. You will find it easy to apply and obtain a secured loan. You may even be found eligible at many lenders for unsecured loan. Some bad credit loan options, such as payday loans and cash advance loans, are always available if you have a regular income and a bank account.
No matter what option you choose, keep in mind one thing. You must not default on your payments, and even try to pay off earlier than end of the loan term. The objective should be to improve the credit score and take it well past the 600 mark. A bad credit personal loan can help achieve this target.