What are the types of loans for bad credit?

What is Bad Credit Loan?

Bad credit loan is a personal loan for borrowers with low credit score. These loans have fixed rates and are repaid in fixed monthly installments. They are generally not backed by collateral - they are unsecured. Instead, lenders consider your credit score, credit report and debt-to-income ratio when deciding whether to lend you money.

What are the types of loans for bad credit?

Even with bad credit, you can choose from a wide variety of loans. Some present more risk to borrowers than others. Here are some of your options:

1. Personal loan for bad credit

Fixed rates for personal loans range up to around 36%, and they are generally more secure than options such as payday loans, auto title loans or alternative installment loans.

You can usually repay the loan in a stipulated amount over a few years. Lenders can offer small and large personal loans, so check the lender's minimum loan amount to make sure it meets your needs.

Generally, this type of loan is unsecured, which means you do not have to carry collateral. Collateral is a valuable asset, such as your car or savings account, that the lender can claim if you default on the loan.

With a poor or fair FICO credit score, it can be difficult to qualify for a standard personal loan. If you have bad credit, you can consider taking out a secured personal loan that uses a valuable asset as collateral. Although secured loans put your assets on line, you are more likely to be approved and may receive a better APR. Some lenders also allow co-signers on personal loans, which can help at-risk borrowers get approved.

2. Payday loans

A payday loan is a small, short-term loan intended to cover expenses until your next payday, when you can pay it back. Payday loans have a reputation as predatory, with lenders targeting consumers with poor credit scores and some alternatives who need quick access to cash.

The loan limit, often $500, is usually much lower than the personal loan limit, and payday loans usually have to be paid off in weeks, not years. Fees can be very high, often equal to the triple-digit APR.

If you cannot pay off the loan in full by the end of the term, you may be able to extend your loan by paying a higher fee. Some payday loans ultimately cost more in interest and fees than the original loan amount.

3. Alternative Optional Installment Loan

Optional installment loans may look like standard personal loans: The lender sends you the money and you follow a repayment schedule to pay off the loan. But they can be similar to payday loans because they are easier to obtain for consumers with bad credit and charge higher interest rates, often above 100%.

Generally, alternative installment loans have fixed monthly payments and repayment terms can be as long as several months or as long as a few years. But you should expect hefty interest rates when you turn to alternative installment loans.

4. Student loan

If you are considering a loan because you cannot afford your educational expenses, you should be sure to consider student loans. You'll generally get the most value out of federal student loans, but even private loans can offer better terms for consumers with below-average credit than other student loan options.

Student loans offer a wide range of repayment terms from five to 20 years for personal loans. You can qualify for a federal student loan for yourself without a credit check, and you can add a co-signer to help you qualify for a private student loan.

5. Credit card cash advance

Like payday loans, credit card cash advances can give you quick access to cash, but they come with a high price tag. When you get a cash advance, you are taking out a loan from your credit card. You will often be on the hook for a cash advance fee of at least $10, and the loan will come with a higher interest rate than what you charge for the purchase.

A credit card cash advance can be helpful if you pay it off early, but the advance can also hurt your credit score by increasing your card balance.

How to get loan for bad credit

Getting a personal loan with bad credit is not impossible, but finding the most affordable loan requires diligent research. Here are some steps to get a personal loan if you do not have strong credit:

1. Check your credit score. You are entitled to one free credit report each year from each of the credit reporting agencies, although you can currently access weekly reports from AnnualCreditReports.com until April 20, 2022. However, your credit report does not include your credit score. You can buy it from credit bureaus or get it for free from some financial institutions.

2. Make sure you can repay the loan. Evaluate your home budget to make sure you can support the additional monthly loan payment.

3. Compare Bad Credit Personal Loans. If your accounts at your existing bank or credit union are in good standing, there may be a personal loan option for you. You can also research personal loans online for people with bad credit, but read the fine print and independent reviews about the lender.

4. Take advantage of pre-qualification. Before applying for a loan, many online lenders allow you to pre-qualify, or check, whether you'll qualify without doing a hard credit check.

5. See Secured Loans. Some lenders offer secured personal loans, which are often easier to obtain if you have less than average debt. These loans must be backed by assets such as your home or car, but they usually have low APRs.

6. Add a co-signer if necessary. Co-signers take partial responsibility for the loan and may need to repay it if you miss payments. Adding a co-signer who has good credit can help you qualify and get you a lower interest rate.

7. Gather financial documents. When applying for a loan, you will likely be provided with financial documents that include pay stubs, tax documents and employment information.

8. Be prepared for a hard credit check. While you can pre-qualify with many lenders without a hard credit check, the actual application will result in a credit enquiry, which can temporarily damage your credit.

Frequently Asked Question (FAQ)

1. What are the documents required to apply for a bad-credit loan?

Requirements will vary from lender to lender, but in general, what you need to have when you apply for a loan:

Driver's license or other type of photo ID

proof of social security number

Tax Returns

pay stubs

W-2 Form

2. What should you consider while choosing a bad credit loan company?

The best loan for bad credit depends on several factors. When choosing a lender for a bad credit loan, consider these key criteria, including credit history and employment, interest rates and types, loan terms, fees and penalties, eligibility requirements, customer service ratings and reviews.

3. Which are the best companies which provides loan for bad credit?

Upgrade

Upstart

LendingClub

OneMain

Universal Credit

Oportun

4. What is the easiest loan to get with bad credit?

In general, secured loans are easier to obtain than unsecured loans because they are less risky for the lender. Secured loans also come with lower interest rates than unsecured loans, even if you have bad credit. However, secured loans are risky for the borrower, as you may lose your collateral if you do not make payments.

One type of loan you should avoid is payday loans, which can have low credit score requirements at the cost of higher fees and APRs that can dig you deeper into debt.