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. Generally bad credit personal loans are expensive with lenders charging higher interest rates to borrowers with weak, bad or no credit than they lend borrowers with good credit. In this case, a bad credit means that the borrower has a history of delaying payments of previous loans or does not pay at all. Delayed payments affect one’s credit score negatively. This makes it a risk to lenders to let you borrow money from them. In order to guard the risk, they increase the rates of the interest charged to borrowers with bad credit.
There are two main kinds of bad credit personal loans. The first category is called the unsecured bad credit personal loan whereby the borrower only signs a written contract promising to repay the loan applying the terms and conditions. When the time of repaying the loan comes and the borrower does not repay, the lenders use external debt collectors to recover the loan plus the interest. Secondly there is a secured credit loan in which the borrower places a valuable item like a car, a house, a piece of land or jewelry as collateral. The lender legally becomes the owner of the item placed as collateral if the borrower defaults repaying the loan.
Some of the benefits of getting a bad credit personal loan are that the borrower never needs to worry about their credit history. In this loans, the lenders are not interested in the credit history of the borrowers. 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. The second advantage of bad credit personal loans is that they get approved quickly unlike conventional loans which take a longer time for approval.
Bad credit personal loans provide people with weak, bad or no credit to improve their credit score. Borrowers who make their payment on time have the chance of creating a positive credit report with the credit bureau. Once the credit bureau has a positive report of the borrowers, their credit score rises, as a results they are able to build a concrete financial stand 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 borrowers can use the large amount of money to invest, make more money and be able to repay the loan.