Introduction: How to Get Unsecured Personal Loans with Bad Credit
It happens to the best of us. Sometimes, debt piles up, credit card statements become a daily reminder in the mail, and our credit scores dip a little too low for our liking. If that sounds like your own situation, you might want to consider getting a personal unsecured loan.
Unfortunately, the stories of loan sharks and predatory lending institutions fill the headlines of tabloid news. Getting stuck with unsecured bad credit loans with unsecured loan rates that are through the roof is a nightmare that no one wants to live through.
If your credit is hurting and you need cash quickly, what is your best bet for finding unsecured personal loans for bad credit?
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In this brief article, AdvisoryHQ will let you know whether or not you can apply for unsecured loans with bad credit. We’ll go on to look at some of the dangers of applying for unsecured bad credit loans and how you can escape those pitfalls.
Next, we will consider when it can be beneficial for you to apply for an unsecured personal loan for bad credit. Lastly, we offer the top six tips for finding the best unsecured loans for your personal financial situation.
Can You Still Get Unsecured Loans with Bad Credit?
If you´ve ever heard a commercial on TV promising “no credit, no problem,” you probably shouldn’t believe it or at least be wary of what they’re offering. The reality is that the majority of major financial institutions simply won’t offer you bad credit unsecured loans if you have a low credit score.
Most of the major banks have strict standards regarding who they can and cannot lend to, and the best unsecured personal loans offered by banks are usually reserved for clients with a long standing of good credit history. What’s more, even if you do convince a bank to give you a loan, the unsecured loan rates are bound to be prohibitively high.
The good news is that banks aren’t the only ones lending in today’s world. From credit unions to personal loan lenders online, there are a number of alternative sources where you can apply for unsecured personal loans.
Obviously, every lending agency prefers to have some sort of collateral (a secured loan), but given that many people simply don’t have any collateral to offer, there is a certain flexibility in offering unsecured personal loans to people with bad credit.
Greenpath.com says that when you apply for unsecured loans with bad credit, you will be judged “on the five (5) C’s of credit – character, capacity, capital, collateral, and conditions.”
Even if you have little collateral to show, you may still qualify for a personal unsecured loan if you can convince the lending institution that you have the capacity to pay off the loan and the character to work hard to not default on the loan.
Unsecured loan rates won’t be anywhere near the favorable 3% APR that some banks offer on 30-year mortgages, but if you’re in a bind and need a way to reconsolidate your debt or get access to quick cash, unsecured loans with bad credit are still very much a possibility.
What Are the Dangers of Applying for Unsecured Bad Credit Loans?
Most people who are searching for personal unsecured loans probably have a history of mismanaging their wealth. The temptation of credit cards leads many people into unsustainable debt, and the high interest rates that cards charge can make it impossible to escape from that debt on the terms proposed by the credit card company.
One of the biggest dangers of applying for unsecured personal loans for bad credit is that you may simply not be able to sustain another debt burden. If you haven’t organized your financial life or don’t have a steady stream of income that allows you to budget around your debt burden, then even the best unsecured loans offering the most favorable conditions can lead you into a deeper financial mess.
Furthermore, many individuals and institutions that offer bad credit unsecured loans may charge exorbitant interest rates. These predatory lenders know that people with bad credit have few other options for an unsecured personal loan and thus take advantage of their financial vulnerability.
The unsecured personal loan rates offered by these lenders can simply be unsustainable or impossible to pay off. Mainstreet.com has found interest rates as high as 36% yearly! If you were to take out a $1,000 loan with a minimum loan rate of three years, you would end up paying $1,080 in interest alone over the course of those three years.
When taking out an unsecured personal loan with bad credit, it’s important to avoid individuals and institutions that offer unsecured personal loan rates higher than 10% annually.
Why Should You Apply for an Unsecured Personal Loan for Bad Credit?
If you’ve been craving a new 72-inch flat screen LED TV to better enjoy your favorite sports team in high definition but are still a couple thousand dollars short, taking out an unsecured personal loan is probably not a good idea.
Unsecured personal loans with bad credit should only be applied for as a last resort measure for serious expenses that you can’t cover otherwise. For example, if you or a family member has a serious medical condition and you’re short on funds to pay for a specialized medicine, it may be a good idea to seek out an unsecured personal loan.
Furthermore, unsecured loans with bad credit may be a good way to consolidate debt with a high interest rate that is making it hard for you to pay off. For example, if you owe $500 on three different credit cards that each charge between 25 and 30% in interest, you may find it impossible to pay off anything other than the minimum monthly interest.
If you were able to find an unsecured personal loan with a more favorable unsecured loan rate, you may be able to pay off your debt quicker and save money in the process.
Even if you found an unsecured bad credit loan that offered an unsecured personal loan rate of 10% (on the higher end of the spectrum), you would still be saving between 15 and 20% on interest, thus allowing you to consolidate your debt and get the balance paid off quicker. The best unsecured personal loans may even offer unsecured loan rates between 5 and 7%.
Top Six Tips for Finding the Best Unsecured Loans
If you think that you are ready to apply for an unsecured personal loan to help you get through a mini financial crisis or to gain access to needed cash, how can you find the best unsecured loans?
- Try Credit Unions for Unsecured Personal Loans
Credit unions are different from banks in that they are owned by their members. Instead of trying to rake up profits for millionaire CEOs, credit unions are non-profit organizations that pass their earnings on to their members.
Since many credit unions are small scale and tied to certain communities, they may be more open to negotiating unsecured personal loans for people with bad credit.
Whereas big banks have strict lending procedures that are written into their guidelines from behind a desk at corporate headquarters, credit unions are usually more open to considering the individual and financial situation of his/her lenders. You are far more likely to convince a credit union to give you an unsecured loan with bad credit than a big bank.
Furthermore, since they are non-profit institutions, credit unions usually offer more competitive and favorable unsecured personal loan rates than big banks or other private lenders who are seeking to make a profit from your financial situation.
- Peer-to-Peer Lending as a Source for Personal Unsecured Loans
Peer-to-peer lending is a relatively new form of lending and applying for unsecured personal loans. Instead of approaching an institution or organization asking for unsecured loans with bad credit, peer-to-peer lending puts you directly with individuals online who are willing to consider your individual history and situation.
With this form of lending, you can usually find decent unsecured loan rates. While your credit score is still taken into account, it is much easier to connect with an individual lender that will take a chance on you.
Furthermore, a number of peer-to-peer lending websites provide platforms and forums where individual lenders and borrowers can be evaluated and reviewed so that you can check on who is giving you the unsecured personal loan you applied for.
Applying for unsecured personal loans with bad credit doesn’t mean that you can only ask for $500 to $1,000. Websites like Lending Club allow you to apply for unsecured personal loans up to $40,000.
- Check the Internet for the Best Unsecured Personal Loan
Personal loan lenders offer an alternative way to apply for unsecured personal loans with bad credit while avoiding the big banks and other predatory lending institutions. The Internet has played a huge role in opening up new and better options for people seeking out unsecured personal loans. Whereas banks used to have a monopoly on the lending industry, the best unsecured loans with the most favorable unsecured personal loan rates are often offered by personal lenders.
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These lending institutions usually offer quick turnaround and easy-to-fill-out applications. If you need cash fast, then applying for an unsecured personal loan with personal loan lenders online may be your best bet.
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- Be Careful with the Fees on Unsecured Personal Loans for Bad Credit
Be sure to read the fine print on the unsecured personal loan with bad credit that you take out. Most of these loans shouldn’t charge any hidden fees, but some lenders will charge stiff prepayment penalties. Obviously, they want to milk all the interest out of the unsecured loans with bad credit that you apply for. However, you shouldn’t be penalized for improving your financial situation and getting out of debt quicker.
- Find a Cosigner to Help You Apply for a Bad Credit Unsecured Loan
If you’re having a hard time finding a bank or credit union to give you an unsecured personal loan and if you’re not Internet savvy enough to try out peer-to-peer lending, you might want to consider asking a friend or family member to cosign with you for the unsecured loan with bad credit you’re applying for.
Your cosigner is basically a form of collateral, and it is often easier to garner trust in a friend or family member who personally knows your hard work ethic and ability to pay off the unsecured personal loan in a timely manner.
- Try to Apply for a 0% Interest Credit Card Before Applying for an Unsecured Personal Loan
You probably receive dozens of credit card applications every week in the mail. Keep an eye out for credit cards that offer 0% interest for six months to a year.
Since the credit card industry is so competitive, many companies try to gain clients through such deals. Even if your credit is less than perfect, you may still be able to get six months free of interest and a credit line of $2,000 to $4,000.
Obviously, no unsecured loans for people with bad credit will offer 0% interest. However, you do need to have a certain level of financial discipline to use your credit card as if it were an unsecured personal loan.
Make it a priority to use your credit line for a one-time purchase and then make monthly payments during the 0% interest period. If you can pay it off within that time frame, you basically received a 0% interest unsecured personal loan from the credit card company. Here are some current offers to explore.
How Unsecured Personal Loans Can Help You Get Your Financial Life in Order
No one likes to be in debt, especially if you’re being gouged at exorbitant interest rates. Finding the best unsecured personal loans with favorable unsecured loan rates is a great way to manage your debt in a more sustainable manner. By following the six tips listed above, you should be able to find an unsecured personal loan that can help you retake control of your financial livelihood.
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