November 4, 2013

Most people assume that if their credit is bad they cannot get a personal loan; however, this assumption is incorrect. Even with bad credit, there is money available from lenders, so if you find yourself in need of cash for any number of reasons, you can get a personal loan.

Is there a catch to getting personal loans with bad credit?
There is really no catch to getting a personal loan with bad credit, but like anything else in life, there are trade-offs. When you have bad credit, there will be three areas that affect the terms of your personal loan. The first is obvious to most people. Interest rates for personal loans accompanied with a bad credit rating will mean paying higher interest rates. How high these interest rates are will be dependent upon how bad your credit rating is. The worse your credit rating is, the higher the interest rates. This is true with any lender, but market conditions for lending money are also a factor. If there is a great supply of money that needs to be lent to people and there are few borrowers, the interest rates may be lower from normal levels. This is why it is important to shop around and compare interest rates from several lenders. Competition between lenders for business with those with bad credit exists, and it keeps rates from getting too high for the average person.

Another trade-off is with the length of time for the personal loan. Those with good rating ratings can often get two to three years to pay back a loan. Those with bad credit may only get three to 12 months to pay back the entire amount. The length of time will be dependent on your income and the length of time at your current job as well as your credit. Applicants that are seen as having a steady and sufficient income for the loan will often be given a longer time to pay back the money.

A third trade-off because of bad credit
Another issue that affects bad credit loans is the total amount that you will qualify for. This amount will vary depending upon which lender you apply to, but the bigger factor will be your income. The more money you make, the more money you will be able to borrow. However, without any collateral to offer as security for the loan, most lenders will cap the amount at $2,500.

Secured versus un-secured loans
The limitations on personal loans with bad credit assume that an applicant has no assets to offer as security for the loan. In fact, if you have sufficient assets to offer as collateral, the only issue will be an income, so the lender will know you have the means to pay back to loan. Lenders are in business to make loans to earn interest, and they don’t want to be in a situation where they have to sell an asset to get their money back for the loan. This is why lenders are picky about the types of assets they will take as security; they want to be able to turn the asset into cash quickly if the situation calls for it.

Many people with bad credit have few assets to use as collateral, and if they did, they could sell it or pawn it to get the cash they need. However, one overlooked asset that many people have is their car. If your car is paid off, you can use it as security to get a personal loan, and you do not have to leave your car with the lender. You only leave your car title with the lender. You can still have use of your car.

Whatever path you take in pursuit of bad credit loans, remember that there are limitations but many options for you. Take your time and shop around for the best deal.