Home > Bad Credit Loans > Bad Credit Loans: A Quick Fix For Those With Questionable Credit
Bad Credit Loans: A Quick Fix For Those With Questionable Credit |
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Bad credit loans may be the only option for people who have a questionable credit history or those who have yet to establish a credit history. There are two types of bad credit loans: bad credit loans that are secured and bad credit loans that are unsecured. Each type of bad credit loan has its own pros and cons. Secured Bad Credit Loans Secured bad credit loans are loans that you are given in exchange for a security deposit, which is equal to your loan amount, or valuable assets that you own. As long as you do not default, you will get your money or assets back from your secured bad credit loan. Why would someone want to take out a bad credit loan that is secured with an amount of money equal to the loan? Consider someone who is trying to rebuild their credit history, needs to get some positive accounts on their credit reports, and only has $5,000 to work with. They could take that $5,000 and get a secured credit card, but that would only be one account. To make their money work harder for them, they could take out a $5,000 bad credit loan and then use that to get a $5,000 secured credit card or maybe even two $2,500 cards. This would mean 2-3 positive accounts with the same amount of money, as opposed to 1. At the same time, they may be earning interest on the money that is securing their bad credit loan and credit card(s). Also their FICO score will get an additional small boost because of account variety (which FICO takes into consideration when scoring credit worthiness): 1 installment account and 1 or 2 revolving accounts, as opposed to just a revolving account(s). The only downside to this type of bad credit loan is that you have to come up with the money or assets to secure the loan. Unsecured Bad Credit Loans Unsecured bad credit loans do not require you to secure the loan with money or assets, but they do have very high fees and interest rates. At times, you may be paying a 30%+ interest rate in order to take advantage of this type of bad credit loan. If you do not have the money to pay much more than the minimum payment each month, this type of bed credit loan will begin to add up fast and your principle balance will go nowhere. This is not a smart bad credit loan for someone who is in financial trouble and is using the bad credit loan to bail themselves out. It just will not work. If you have bad credit and need a loan, think about the pros and cons of each type of bad credit loan to determine which is right for you. No matter which one you choose, each type of bad credit loan will help you to build or rebuild your credit history, as long as you make your monthly payments on time. Remember though, even with a secured bad credit loan, your delinquency will still be reported to the credit bureaus, even though the bank has collateral. |
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