#unsecured loans for people with bad credit
Bad Credit Unsecured Loans
Bad credit unsecured loans are designed for people with bad credit and no collateral, so people that have been denied loans can get the money they need.
No Collateral Necessary for Bad Credit Unsecured Loans
Collateral is something of value that the lender can use to ensure you will repay a loan — that is, if it’s a secured loan. Lenders are more confident that a borrower will repay a secured loan, because if the borrower doesn’t repay the loan, the lender can seize the collateral.
For example, a car loan is a secured loan, and if a borrower defaults on the car loan, the lender can repossess the car (which, in this case, is the collateral).
Bad credit unsecured loans are unsecured, so they don’t require collateral. Of course, lenders feel unsecured loans are riskier, since borrowers may not repay debt that isn’t attached to collateral. Lenders make up for this risk by charging higher interest rates for unsecured loans.
Unsecured Loans for Bad Credit Borrowers
Bad credit is determined by an individual’s credit report, which provides lenders with a person’s financial information, including payment history and amount of debt owed. Bad credit can result from late payments, too much debt, or other factors.
Bad credit suggests that an individual either does not know how to manage his or her finances or is irresponsible with his or her finances. Oftentimes lenders deny loans to borrowers with bad credit, because they are afraid such borrowers will not repay the loans.
Some lenders, however, understand that credit is not taught in school, so many borrowers are not aware of how their credit habits impact their credit until after the damage is done. Lenders also recognize that an entire market of bad credit borrowers is being overlooked.
In order to harvest potential profits from this untapped market, lenders have become more lenient with whom they are willing to lend money to. Providing poor credit unsecured loans to people with bad credit is still risky, though, so lenders charge high interest rates to cover their losses.
Higher Interest Rates for Bad Credit Unsecured Loans
Since obtaining an unsecured loan with bad credit will likely result in higher interest rates, it’s important to recognize how interest rates can affect the cost of the bad credit unsecured loan.
The best way to understand how interest rates can impact the cost of a poor credit unsecured loan is by comparing similar loans with different interest rates. Below are several loans with the same initial loan amount and the same term (the length of time until the loan comes due). The only difference is the annual percentage rate (APR).
APR is the interest rate that is charged for the entire year of the loan and is used to compare loan costs. Calculate the monthly interest charge by multiplying the APR by the loan balance (the amount still owed on the loan) and divide by 12.