Some Information on Loan for Bad Credit

Screen Shot 2016-01-31 at 05.35.50For those who do not know what a unsecured loans for bad credit is, the name says it all. It is a specially designed loan category for people having a credit history rated as poor. This poor credit history may be assigned to a person for different reasons which may include the following:

  • Prior inability to pay your credit card bills on time
  • Breach of some credit related legal contract in the past
  • Adverse judgement or sentence of any legal court in the person’s history
  • No evidence or document that can prove to the finance companies or creditors that your prior debts and loan instruments have been managed in a successful manner.

Due to the above mentioned reasons and many other underlying causes, the regular financial institutions do not proceed to provide loans and lines of credit to persons that have a poor credit rating. For such people the way out to meet their shortage of funds are the bad credit loans.

Loans for Bad Credit and their Usefulness:

Amongst all the advantages that such loans for bad credit have, the most important one is the availability of funds to people who are unable to maintain a good credit history. This means that they can meet their requirement for money using this category of loans. It does not matter which purpose or need is fulfilled using this money. The borrower can use it for buying basic needs, to make payments against earlier loans, fulfill expenses against any kind of unexpected urgency or simply to adjust problematic loans and hence bring about an improvement in your credit position. This category of loan acts as a life saver financial instrument for customers with bad credit history.

But due to the high uncertainty and large amount of risks associated with such people, the bad credit loans offered to them are very highly priced. In comparison to other regular types of debt instruments they have a much higher interest rate. This is a negative characteristic of bad credit loan.

Different sub-categories of loans for bad credit:

The bad credit loans can be categorized into two types that include the following:

  • Secured Credit Loans are those types of loans that are given against some kind of collateral. This means the borrower has to present an asset of value as collateral to be pledged against the loan amount. In the event of non-payment of loan, the lender can claim the right of ownership on the collateral or asset.
  • The second type of bad credit loan is an unsecured one. As the name clearly points out, it can be provided without the pledging of any collateral or asset.

Obviously the two types of loans for bad credit differ when it comes to pricing. The loans secured with collateral are less risky and has lesser potential of losses. So they are offered at lower interest rates as compared with the unsecured bad credit loans that are very expensive due to the high risk of loss involved with them. The unsecured loans are also liable to stricter financial and nonfinancial clauses in the legal contracts. In conclusion, no one can disregard from its usefulness because it helps people in need of basic necessities.