A bad credit record makes you a risky borrower and lenders will be less willing to grant you an unsecured loan.
This can be a real issue when you have pressing need for cash. The situation can become even more difficult in case you do not have an asset to use as collateral for getting a secured loan. How can you get out of this situation?
Unsecured loan with bad credit
You simply need to compare the alternative options and select the most suitable one for you.
Analysing Your Current Position
When you have bad credit, you will not be able to access the personal loans with the lowest interest rates. Instead of focusing on the most attractive deals which are out of your reach, you should look for a product which can be of use to you and which you will be able to repay without struggling. You should have a clear idea of how much you need to borrow and what portion of your monthly income you can set aside for the repayment of the loan.
You should find out whether the use of an unsecured loan is absolutely necessary in this particular moment. This is important since these credit products tend to have high interest rates. If you are able to place an asset as collateral, you can obtain a secured loan with lower interest. Many lenders are able and willing to accept assets other than your house as collateral as long as they have a sufficiently high value.
You can use a car title loan as an alternative to an unsecured loan. In this case, the equity which you own in your car becomes collateral. This option is suitable for you if you have repaid most of your auto loan and you have considerable equity in the vehicle. Since the loan is secured, you will pay lower interest rate. This will result in lower monthly payments as well. The lower cost comes with a higher risk. If you fail to repay your debt, the lender will have the right to repossess your car. In this case, you may not be able to travel to work and this will result in loss of income.
You can use other types of assets for getting an unsecured loan. There are lenders who approve investment instruments and whole portfolios as collateral. Others work with small but highly valuable physical assets. The most important thing is for the lender to be registered and to comply with all relevant rules and regulations.
Taking Out a Loan with a Co-Signer
You will have the highest possible chances of approval for an unsecured loan with bad credit when you apply for a loan with a co-signer who has good credit history and earns a steady employment income. You and the co-signer will share the responsibility for the repayment of the loan. If you have difficulties, the co-signer will have to take over. In this case, the risk for the lender is much lower.
Your main task is to find a co-signer. This may be challenging since the person will have to be prepared to set aside a portion of their income for repaying your loan in case you are unable to do so. The repayment of the loan may be financially burdening for the person and may prevent them from taking out another loan, especially if the instalments on your loan take up a considerable portion of their income. At the same time, even if you are fully prepared to repay the loan, anything can happen. You may lose your job or become unable to work. For all of these reasons, co-signing has to be approached with great care.
Getting a Bad Credit Loan
There are unsecured loans for people with bad credit which are available from specialised lenders. These credit products are usually very easy to access. However, they are very expensive as well. In some cases, the total cost of the loan consisting of interest payments and fees can be higher than the borrowed amount. You should stay away from such loans as they can get you into even more credit trouble.
Many of the lenders offering bad credit loans engage in predatory lending. They target people who have bad credit and who have been denied loans by traditional lenders. They rely on the fact that these people are in a difficult situation and will be willing to accept unfavourable terms and conditions. If you work with such a lender, you should not expect to find great understanding and flexibility. If the loan is way too expensive for you, you can get into even more debt and your credit record can suffer greater damage. You should avoid dealing with such lenders and focus your attention on the registered credit providers with excellent reputation.
Making a Choice
When you assess a loan, you have to check how affordable it will be to repay and how it will impact your credit record as well. You should try to obtain a loan which will be reported to the credit bureaus. In this case, the repayment of the loan will bring considerable improvement to your credit record and consequently to your chances of loan approval in the future.
You have to choose a lender very carefully. The credit provider must be registered and perfectly reliable. Credit unions may show more flexibility compared to commercial banks. Payday lenders will provide a loan more easily, but you have to be prepared to pay the higher interest and fees.