Friday, May 16, 2014

Unsecured Loans for Those With Bad Credit: Three Options

There is a global financial crisis going on at the moment due to an overall loss of jobs and home values. People are finding themselves unemployed or underemployed and bills that were once a snap to pay are piling up as creditors come knocking at the door. While in these crisis situations many people turn to their home bank to get help in the form a personal loan, those with bad credit are simply out of luck as the banks flat out refuse to lend to you.

All is not lost, though and there are types of unsecured loan that are offered to bad credit borrowers every day by specialist lenders who you can find online. Generally, these lenders can offer you a line of credit without regard to your credit history.

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What Is an Unsecured Loan?

The loans that online lenders offer bad credit borrowers are called unsecured because they lack a collateral backing that would "secure" the lender's investment should the borrower default on his payments. Secured loans, which are leveraged against some sort of real property such as a home, are generally the only loans offered by banks to bad credit borrowers. However, online lenders are willing to take the risk and offer you an unsecured loan despite your poor credit history. However, because of this greater risk, unsecured loans will carry a higher interest rate than secured loans.

Unsecured Lending Options

There are several types of unsecured loans that you can choose from on the market today. Which one is appropriate for your needs is something to discuss with a lending professional.

1. Unsecured Personal Loans

These are popular lending options for those who need to borrow larger amounts of cash over a long term. The general amounts offered range from £7,000- £15,000. However, the risk of such a long term loan is really high on the part of the lender since he will need to trust that you will have the ability to keep up with your loan repayment over time. Therefore, these loans carry the highest interest rates.

2. Payday Loans

This type of loan serves the opposite purpose of the personal loan in that it is for a smaller amount of money and offered over a short period of time. Payday loans are given without regard to credit score. Rather, they are concerned with income and the ability to repay the loan within a window of 30 at most. The idea is that the loan is a "payday" and you will use the money you get in your next check to repay the loan. These loans are available in amounts ranging from £100-£1,000.

3. Unsecured Credit Cards

Another way to get the money you need, which combines the two options above is in an unsecured credit card. This will allow you to only use the amount of money that you need at any given time and give you the ability to pay it back over a longer term than those offered by payday loans. However, credit card interest is always higher than loan interest and with bad credit, expect that 18% APR will be the minimum you should expect.

Finally, though loans can provide a much needed sense of financial relief at a time when you need it most, they are not free money and it is important to understand that the lenders are in this business to make a profit. Their profit is the interest that they make on your loan. Your ability to repay them, therefore, is paramount and if for any reason they feel that you cannot accomplish that, they will still deny you. It is important to have the income to support a loan repayment as well as a solid budget in plan to help ensure that you can successfully meet all your financial duties each month.

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