When a person falls on hard times, getting an unsecured loan is just one more mountain that looks impossible to climb. Though your traditional places for seeking a loan – banks and credit unions – may be unable to help, all hope is not lost. Even people with bad credit can get an unsecured loan from specialist online lenders who are happy to work with those borrowers who need extra help. Before you go looking for an online unsecured loan, however, make sure that you are educated about your choices and the lending process.
Defining Basic Loans
In the lending world there are two basic loan options. The first is a secured loan. This is when someone borrows money by using property as collateral, or insurance. Bad credit matters less in getting a secured loan because the value of the property leveraged gives the lender assurance that even if the debt obligation is not met, he will have something to show for his efforts.
The other option, and unsecured loan, is a far riskier proposition. In this case, the borrower offers nothing to the lender as assurance of repayment. Instead, the value of the loan is unsecured and subject to total loss should the borrower fail to provide timely repayment. Lenders are therefore highly suspicious of any borrower looking for an unsecured loan and having bad credit will demote you in their minds even more.
Unsecured Lending Options
All this does not mean, however, that you are completely left out to dry if you are a borrower with bad credit. Unsecured loans do exist for people like you and, in fact, come in several varieties. The key is figuring out which loan package suits your needs best and then finding the best possible lender to provide it.
Option #1: Personal Loans
Unsecured personal loans are the hardest to obtain with bad credit, but also the most versatile and safe. This is a traditional long-term loan that will give anywhere from $5, 000-$25, 000 to be repaid over a period of 5-15 years. Interest rates on these loans are not as high as some other options, but borrowers with bad credit will likely need to find a cosigner in order to qualify. If you have a reliable cosigner, however, this may be a great choice.
Option #2: Payday Loans
For times when you need a relatively small amount of cash quickly, payday loans present a real viable option. Generally given for $100-$1, 500, payday loans are a short-term fix for cash flow issues. These loans carry higher interest rates, but that is primarily because they are only given for a very short period of time – generally 14-90 days only. If you take a payday loan, you will not be subject to a credit check, but you will also need to be sure you can repay your loan quickly.
Option #3: An Unsecured Credit Card
The final option available to borrowers with bad credit is an unsecured credit card. Though you will likely only qualify for a small line of credit at first, unsecured credit cards allow you the freedom to spend as much or as little of your credit line as you want without the burden of repayment of the whole. You can budget around your expenses. The interest rates on these cards can be quite high, however, so it is necessary to spend wisely.