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Getting a Loan When You Have Bad Credit

Getting a fast personal loan can be easy for consumers with a good credit rating. However, if you have a bad credit score, the task of finding someone to give you a small loan may prove to be much more difficult.

If you have bad credit, you may consider the option of getting a secured or collateral loan instead. An unsecured loan is where the bank and or lending institute give the consumer a loan without holding any of your assets. If you are a consumer with bad credit, most banks and lenders will not want to give you an unsecured loan because you are considered to be a high-risk borrower.

If you wish to get a unsecured loan from a conventional lender or bank, and you have bad credit or a bankruptcy, your choices will be few. Though for many a uncomfortable option is to ask a friend or a family member that does have good credit to co-sign for you. Even for close friends or relatives, being put in this situation is difficult considering that should you default, that friend or family member would be responsible for paying back the loan themselves.

If you prefer to not put any of your family or close friends in this predicament, you may consider obtaining either a title loan or a short-term payday loan.

Title Loans

Title loans if not properly approached may well prove to be one of the worst loans a consumer can take out, and absolutely should be one of the last resources to turn to for taking out a loan. Title loans should only be used as a short-term emergency loan. Considering the risks involved with these loan types, you the consumer must develop a realistic payback strategy to repay the loan as soon as possible.

The interest rate on these loan types can be extremely high because the typical loan period is between 30 and 90 days. Also, if consumers keep these loans out for longer periods, the APR (Annual Percentage Rate), can be very high. Given what the particular states regulations are, fees and interest charges can add up very fast.

Right now, many states have adopted very few restrictions on title loan lenders, and are therefore, not as restricted for consumer protection regulation like credit card company’s are.

If these short-term emergency loans are held out for as much as 12 months, the APR can be upwards of around 300%. Considering that title loans are considered short term loans like a pawn shop loan, the APR is rarely disclosed, but can be daunting to most consumers when discovered.

Having a high interest rate and APR, is just the start of what consumers need to recognize when taking out a title loan, and the fact that they could potentially lose their vehicle should they get behind on the loan payments.

Car title loan companies cater to consumers that are in a bad financial bind, and that have bad credit, or have had a recent bankruptcy, and there is somewhat minimal risk to the lender considering that they will be holding the title to your car as a secured loan. Should you default on the loan, the lender simply repossesses your vehicle. This gives the lender good protection.

Typically a car title lender will only lend up to 50% of what they estimate they could get if they had to repossess your vehicle, and sale if fast at a auction. Being that the lender is holding the title to your car until the loan is repaid, it’s as though the lender owns your car for the life of the loan.

The default rate on title loans can be quite high, and many consumers complain about how difficult it can be to pay fit those high payments into their budgets. This is why you as the consumer must be a responsible borrower when seeking out a title loan for fast emergency cash.

Another alternative to a title loan, are the payday loans, if these type loans are allowed in your state.

Payday Loans

Payday loans are a form of very short-term emergency financing, and can be a lot easier than the aforementioned, and are setup specifically for those that struggle financially on a regular basis. The downside of these type of loans is that the APR or Annual Percentage Rate can be downright mind-boggling. Many times these type of short term fast cash loans can carry a APR of over 800%, so you really only want to consider this loan option for a short term solution. If you do take out one of these type of loans, and you drag out paying it back for say a year, you may well end up paying over eight times more than you initially borrowed. So as you can see, payday loans should be the last alternative on your list.

The secondary lending market may well be a good place to look for a loan if you have bad credit, and need to do a unsecured personal loan. Given the volume of consumers nowadays that have bad credit especially after hard economic times of the last few years, has created a influx of lenders ready to fill the needs of these borrowers. Such lenders specialize in extending credit to borrowers with bad credit. One can definitely expect to pay a much higher interest rate than that of a conventional loan, yet no where near the interest rate of a payday lender.

Which Is Best For You?

In the end, which loan is best for you depends upon your particular situation.  Title loans seem to be a favored option by people that own their car or any other type of vehicle with a clear title. Title loan payments can be received with a substantially lower interest rate.

However, if you do not own a vehicle but do have a job, a payday loan might be your best bet.  Regardless of which loan you choose, always do your research, read the fine print carefully, and take your time so that you can make a decision that does not put you into a larger financial hole later.