Secured Loans for Bad Credit: Personal Loans 411
Many of us are concerned about our credit scores. We know that those three numbers make a big difference in our lives. They dictate if we can get a new car, or house, sometimes even a cell phone. We all know what it like when unexpected expenses come up and we do not have the money for them. It can be a scary place to be. There may be ways to find help. Continue reading to find out more information about secured loans for bad credit.
What Are Personal Loans?
A personal loan is money that you can borrow from a lending source, such as a bank, or credit union. You pay the money back in regular monthly payments for a set amount of time. The payment amount is set, so it will not change. Personal loans have interest that you also pay back. The interest rate can be anywhere from 6 to 40 percent, depending on your credit score.
Lenders look at many factors when determining if they should lend you money. You credit score is one of the first thing at which a lender looks. They also look at your actual credit report and your debt to income ratio. The higher your credit score is, the better interest rate you receive. Some lenders will not give a loan to someone with a credit score below 600. Others will, but it will have a high interest rate. When you have less than perfect credit, shop personal loans to find the best rate you can.
When looking for a loan with poor credit, you should make sure you have a good understanding of the loan process. Read all of the fine print and be sure you understand everything. There are two major types of loans, secured and unsecured.
What is the Difference Between Secured and Unsecured Loans?
If you are interested in obtaining a personal loan, it is important that you understand the difference between secured and unsecured credit. A secured loan is one in which you give something as collateral for a long. That makes the money you are borrowing more secure. If you do not pay back the loan, the lender can, and will take the item you have promised as collateral. In most cases the collateral is your house, or vehicle. If the lender has to take your home and it is not enough to pay off the loan, you may still owe money. Usually, secured loans for bad credit is the route you may have to take if you have a low credit score.
An unsecured loan is one that does not have collateral attached to it. However, that does not mean that if you default, or do not pay, on your loan that your assets cannot be seized. The lender can still have rights to the things that you own. It really depends on where you live how much a lender can take from your assets. In general, the lender is risking more with an unsecured loan, which is why the interest rate may be higher.
What is the Difference Between Secured and Unsecured Credit Cards?
In addition to unsecured and secured loans, there are also unsecured and secured credit cards. A secured credit card comes from a bank and has money behind it. It is secured by money that you have deposited into the account from which the credit card is using money. That also means that the limit on a secured credit card is based on the amount of money in the account. These cards are great for those with no or bad credit history. This is a great way to build or repair your credit. By making payments on this credit card, it positively impacts your credit score. Those timely payments show up on your credit report.
An unsecured credit card is what most people think of as a credit card. You do not have collateral with this type of credit card. In this case, your credit limit is tied to things like credit score and payment history. There is a down side to having an unsecured credit card. You should keep in mind when considering an unsecured credit card that it may have high interest fees. Be sure to take a look at the interest you on any credit cards you have. In addition, if you carry a balance each month, it may take you years to pay off the fee and interest on your card. There could be fees that you are not aware of. You must pay attention to your credit cards, their balances and your statements. Make sure your credit card does not have an annual fee. If it does, find another one. There are plenty of cards without annual fees.
Good way to build your credit
This can also be a good way to build your credit, but be smart. Purchase small amounts on your credit card. Pay it off every month. This way you will not get yourself into a situation in which you will not be able to find a way out. Lenders pay attention to if you pay off your bills on time. If you credit card does not have the best terms initially, as you improve your credit, you may be able to get better terms. You can also find a different credit card more easily with improved credit. Typically, you need secured credit cards or secured loans for bad credit.
Can I Get a Personal Loan with Bad Credit?
This is the question that many people ask when they feel they have no options. When you are already living paycheck to paycheck and an emergency comes up, what do you do? The short answer is yes, you can get a loan with bad credit. The reality is there are more details in which you should be aware.
First, let us talk a little about credit. A credit score can be anywhere from 0 to 850. 0 shows up for someone that has no credit at all. That can be as bad as low credit because lenders do not know your credit worthiness. An average credit score ranges from 650 to 700. Anything below 650 is bad. Credit scores in this category are considered high risk. Lenders are less willing to lend to those in the high risk range. If you are in that category, you should consider secured loans for bad credit. You may also consider short terms loans. More about those a little further down in this article.
High Risk Category
If you fall into the high risk category, getting a loan is not the only problem you may have. You may not be able to get an apartment, a car, and in some cases even a job. Do not despair. Even if you are in the high risk category, you can still get a loan. However, you need to use that loan wisely. You may need a co signer on your loan. This means that you need someone to agree you will pay back your loan. If you do not pay it back, your co signer has to. Be sure to pay back your loan, if you have a co signer. You do not want to mess up that relationship.
You may be able to get a loan from a credit union. Credit union’s rules tend to have more relaxed rules when it comes to lending. They are more often willing to loan high risk individuals money. You can also shop online for loans. They usually have higher interest rates, but you can get secured emergency cash loans.
No matter what type of loan you get, you must pay it back. Do not get a loan that you cannot pay back. All this will do is put you in a worse place financially than you are right now. It will hurt your credit score. Creditors will call you. That is a stress you do not want. If you get a loan, make sure it is for the smallest amount you need. Do not get a loan for more money than necessary. Getting a small personal loan is a great way to increase your credit score. It only works if you pay back the loan timely. You may need to consider secured loans for bad credit.
Are Payday Loans a Good Idea?
When your credit is less than stellar, you may wonder how you get secured cash loans bad credit? Whatever approach you take, you must do so carefully. Any loan can be good or bad, it depends on how you use it. There are some ways to get fast money when you have less than perfect credit. While there are benefits to these types of loans, there are pitfalls. Arm yourself with knowledge about the various types of loans and the hidden costs. You want to make a smart decision that helps you build your credit, not hurt it.
Payday lenders are everywhere. You cannot drive down the street without seeing one on every block. So, what are payday loans? They are a type of secured loans for bad credit. They do not have collateral associated with them. Payday loans have a short repayment time frame. You usually have to repay within a month. That is not much time. However, if you know that you are getting a bonus check, or you are expecting money owed to you, then this might work.
High interest rates and fees
These loans have extremely high interest rates and fees. Each state determines the maximum amount a payday lender can give. The state also sets a cap on the allowable fees. Even with the caps, you can pay well over 300 percent in interest charges. A payday loan must be paid back all at once. When you make the payment in 30 days, it is for the full amount. When you sign the contract for the loan, the lender requires a check that is post dated. They may also get permission from you to debit directly from your bank account on a certain date. They make sure they get their money. If you cannot repay them, you can take out another loan to pay what you owe. This can put you in a terrible cycle of taking out a loan to cover the cost of an existing loan. It is a cycle from which you cannot easily remove yourself.
Payday loans should be a last resort. You should only get a payday loan if you are guaranteed to have the money to pay it back in 30 days. In addition, paying back this loan should not put you in a worse place. There may be other secured loans for bad credit for you to consider.
What Are Title Loans?
Title loans are secured loans for bad credit. Like payday loans, they also have a short repayment schedule. This is another way to get a quick cash loan. Title loans differ from payday loans in that you are putting up collateral for this loan. You are using your vehicle. Lenders will accept cars, motorcycles, trucks and SUVs as collateral. The vehicle must be worth enough to cover the amount of the loan. These loans also have a high interest rate. It can be well over 300 percent. Title loans must also be paid in full at the time you make the payment. This can put you into that same cycle of acquiring new debt to pay off the old debt.
To obtain a title loan, you must bring the title of your vehicle to the lender. They company puts a lien against your vehicle until you pay off the loan. The maximum you can borrow is about one-third of the value of the vehicle. Some lenders will give you up to one half. Many states cap the loan amount at around $5,500.
These lenders do not run a credit check for this type of loan. Since you are using your vehicle as collateral, that is all the lender needs to give you money. If you do not pay them back, they get to keep your vehicle. It is that simple. The lender also reports your default on the loan to the credit bureaus. You lose your car and your credit score is impacted. There may be better ways for you to get secured loans for bad credit.
There are many potential options for secured loans for bad credit. Ultimately, you are the only one who can decide what is best for you. No matter what route you decide to go with a personal loan, you should find out as much information as possible. You should understand your credit score. You should also know what it on your credit report, so you can fix things that are incorrect. When looking at your credit score, look for inaccuracies. If you see them, fix them. This could improve your credit score. You should also know what your debt to income ratio is and find ways to improve it. One way to improve your debt to income ratio is to pay off as much debt as you can.
I know you are thinking, well if I could do that, I would not need a loan. That is possibly true, but there are ways you could save money. You could spend less money and use that savings to pay off debt. You can look for ways you are spending money that you are not using, like a gym membership, for example. If possible, you can get a part time job to earn some extra money. That may not be possible for everyone, but it is an option.
Consider all the different options available
There are good and bad options for secured loans for bad credit. Some of the most important things are fully understanding the loan terms. Before you sign anything, make sure you understand what you are responsible to pay and when. Make sure you are aware of any fee and charges. Read all of the fine print and make sure you understand it. Do not put yourself in a worse place financially by not paying the loan back. Make sure that you can afford to pay the loan amount every time you have to pay it. It does not matter if you make one payment in full, or a set amount every month, be sure you can pay it. If you do not pay back your loan, it impacts your credit. Lenders will always get their money.
Julia Peoples is a long-time business manager focused on providing decision making assistance to the public. She works with people at key points of their lives who are making important retirement and financial decisions. She has had many articles published that educate the public on sound financial decision making.
Julia writes for those who are working towards financial freedom or a better understanding of how finances work. She has shared her financial insights with individuals on a one on one basis for years.