As we all know is it not that simple to qualify for an unsecured loan with bad credit. But, emergencies happen and sometimes they need to be covered with some extra cash.
What is an unsecured loan?
An unsecured personal loan is approved for the borrower without collateral. Borrowers are trusted and qualified for an unsecured loan because of their credit history and income. These loans are also known as “signature loans” because they are based entirely on your signed agreement with the lender.
What is 'bad credit'?
Credit is entirely based on one's credit history. Bad credit comes from a couple of problems such as late payments, bankruptcy records, and collection accounts. There is no standard to “bad credit” because all lenders analyze your credit score and history differently.
Of course, any late payment or derogatory mark on your credit will lower your score so avoiding that at all cost is key.
Types of unsecured loans
Personal loans are available to those who qualify. They are offered from banks, credit unions, and online lenders. They are unsecured loans that give you the freedom to spend the money on anything you want, use it wisely.
Student loans are most of the time unsecured. Students can go through the Department of Education to qualify for a student loan that best fits their needs.
Credit cards are one of the most common unsecured loans. The money is being borrowed as you're using it for the purchases you make.
What loan options do I have?
With a bad credit score, your options are more limited due to your credit history. It's important to pick an option if any, that won't be difficult to step out of when you're standing back on your two feet. For example, no prepayment penalty.
Swaying away from unsecured loans is smart because they usually have the highest interest rates and they are challenging to qualify for.
Giving the lender an option for collateral may help them, help you put some extra dollars in your pocket. It doesn't necessarily have to be equity in your home, it can even be your car if you have enough paid off already. They will ask for your car title to hold onto until the full amount of the loan is repaid. But, don't forget that if you fail to pay back the loan you can lose your car or anything you give up as collateral.
There are many cases where waiting and contacting a credit repair company is the correct move before leaping directly into applying for a loan with super high interest. Credit repair companies do their best to get your desire credit score in place, experts including CreditRepair.com and The Credit Pros have had much success with their clients.
Is a co-signer an option?
Of course, if you're on the path of approval for an unsecured loan with bad credit it'll most likely be with the help of a co-signer. They will also have to run through a credit and income check to prove that they can afford the loan. Also, they will be held accountable to repay the loan if you can't anymore. It is risky to be a co-signer because they are just as responsible for repayment as you are.
Beware of predatory lenders
There is always the worst case scenario when it comes to any situation. In this case, there are some lenders that offer an unsecured loan to borrowers with bad credit but the worst part about it is that you'll end up paying more in fees and interest than the entire principle.
A common term is predatory lending which is common when borrowers have bad credit because they know that the bad credit borrowers get turned away by many lenders. They have the upper hand, they have more to gain from the transaction than you do. It is better to not borrow than to accept an offer where you'll only be hurting yourself or one that sounds too good to be true.
Lenders give out uninsured loans that don't report to the major credit reporting companies, which won't help you in the long run because you're not building credit. Along with needing the money, make sure that you're improving your credit along the way.
Focus on finding a reliable lender like your bank or local credit unions or a website you can shop around for the best-unsecured loan rate.