Personal Loans for Poor Credit

| January 3, 2012

Whether it’s for an emergency care repair or an unexpected medical bill, your expenses can quickly overcome your emergency fund’s available balance. If you’re in need of a personal loan but have poor credit, there are several different approaches banks may offer you. However, you should be aware of the ramifications and conditions of these options before you sign on the dotted line.

High Interest Rates

People with poor credit can sometimes get a personal loan if they agree to pay a very high interest rate. For example, a bank my offer someone with perfect credit a rate of four percent interest. The same bank may offer a person with a similar income but poor credit a rate of 15 percent or more. Whether or not you find this acceptable hinges on your budget and how badly you need the money. No matter what your credit score, you can shop around the find the most attractive rate.

Using a Co-Signer

If your credit score is not strong enough to allow you to borrow on your own, you may be asked to find a co-signer. A co-singer can be a friend, parent, or relative with good credit. They take the responsibility of the loan in the event that you do not pay as agreed. While this arrangement s mutually beneficial if everything goes according to plan, defaulting on the loan or even being late with payments can destroy you co-signer’s credit. Only take this offer if you are absolutely certain you can handle the loan in your budget.

Putting Up Something as Collateral

If you own a car, have a savings account earmarked for a child, or have an antique coin collection, some financial institutions will allow you to take out a secured personal loan with the items as collateral. The only item most banks will not touch is a house, which is the collateral in the case of a mortgage or home equity loan. Before taking these terms, consider whether or not you are willing to lose the collateral if you are unable to repay the loan. In some states, it is perfectly legal for a bank to hold collateral worth far more than the loan amount, making it an even worse loss if you default.

By being cognizant of these scenarios, you will be better equipped to decide whether the terms of the personal loan being offered to you are acceptable. Remember, taking out a personal loan and making timely payments will improve your poor credit, so actor that into your decision as well.

Category: Bad Credit Loan

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