A bad credit loan is a term used to refer to a type of loan offered to borrowers who have weak, bad credit history or no credit at all. In bad credit personal loans, lenders tend to charge borrowers a higher interest to borrowers with a bad credit as compared to those with a good credit. Individuals who delay payments of previous loans or do not pay at all are said to have a bad credit. Delayed payments affect one’s credit score negatively. As a result, lenders lose their trust and find it difficult to lend such individuals with money. Since they don’t fully trust borrowers with a bad credit score, the defend the risk by charging them a higher interest rate.
There two types of bad credit personal loans. First there is an unsecured bad credit personal loan in which borrowers sign a contract and make a promise to repay the loan in accordance to the terms and conditions agreed upon. If the borrower defaults the loan the lender may use the services of debt collectors or through other legal media. The second type of a bad credit personal loan is called a secured loan in which the borrower places an item of value as collateral, it could be a car, a title deed or a valuable jewelry. The lender legally becomes the owner of the item placed as collateral if the borrower defaults repaying the loan.
One of the benefits of a bad credit personal loans is that it is not affected by the borrower’s credit history. Lenders never request for a borrower’s credit history. The major concern of the lender lies on whether the borrower will be able to repay the loan they are asking for in the future. Unlike conventional loans which are difficult to get, bad credit loans are beneficial in that they are approved quickly.
Bad credit personal loans provide people with weak, bad or no credit to improve their credit score. If the borrowers of bad credit loans repay their loans on time, a positive report goes to their record in the credit bureau. A positive credit report increases the borrower’s credit score and hence they are able to build a firm stand in their financial stability. The last advantage of a bad credit personal loan is that the lenders offer large amount of money to borrower s which is paid in a shorter time frame. The large amount of money is beneficial in that the borrower can invest, make profits and repay the loan on time.