A Better Bad Credit Loan

There is a common misperception that it's impossible to get a loan with poor credit. In fact, with some persistence, almost anyone can get a loan from some kind of financial institution. A good look at your credit report will give you an idea of what to expect when applying for a loan with bad credit. A FICO score in the mid 500's or lower indicates bad credit. Learn about secured or unsecured loans and how to find the best interest rate.

Besides your credit score, your credit history will help determine whether or not a lender will extend you credit. Your credit history is different than your credit score; it provides a more detailed record of your use of credit than could a simple number. Your credit history report reveals not only the timeliness of your payments to creditors, but also the number of accounts you have open, the balances of each of them, and your total amount of debt.

It is entirely possible to get an unsecured loan with bad credit. Unfortunately, you will pay a higher interest rate on your loan. Lenders providing unsecured loans must somehow mitigate the risk they incur by not requiring security for the loan. They do this by charging much higher interest rates than for a comparable secured loan. Couple this with bad credit, and the interest rate may skyrocket to the point where it may not be the best option for finding a loan.

A better option for getting a loan with bad credit could be a secured loan. As the name suggests, a secured loan requires that you put up some type of security to protect the lender in the event you default on the loan. Mortgages and auto loans are some examples of secured loans. If the borrower does not follow the terms of the loan, the lender may foreclose on real estate, or repossess a vehicle.

Another option is to get a home equity loan or line of credit. With a home equity loan, you borrow against the equity you have built in your home. You may prefer to refinance your existing mortgage and get cash back by borrowing more than the payoff balance of the loan. Your credit history will be taken into consideration, though there are FHA loans, Fannie Mae Loans, and VA loans backed by the US government that have less stringent credit requirements than traditional mortgages.

Besides homes and automobiles, a plot of land may also be used for collateral on an unsecured loan. In fact, anything that is fixed to the property that has significant tangible value can normally be considered as security for a loan. Other valuables like jewelry and antiques may sometimes be used as collateral depending on the lender, though a loan backed by smaller assets will probably carry a higher interest rate than a loan backed by real estate or a vehicle.

If you don't need to get a loan immediately, you may want to delay buying the item until your credit improves. With good credit you will be more likely to be approved for a loan, whether secured or unsecured. Just as importantly, you will be able to avoid bad credit lenders who may have less than ethical business practices.


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Gregg Pennington writes articles on a number of topics including loans, debt and credit. For more information about finding a loan with bad credit visit: http://www.onlinemoneysources.net/bad-credit-personal-loans.html