What is a bad credit personal loan? Here’s what to know
作者: Denny Ceizyk, Sat, May, Min Read
內容
Key takeaways
Bad credit lenders may approve borrowers with credit scores in the upper 500s or lower.
Personal loans for bad credit usually come with high annual percentage rates (APRs) and high costs.
Beware of lenders that guarantee approval or require upfront fees — these are signs of a scam.
Getting approved for a loan with bad credit can be challenging. Fortunately, you can get bad credit loans from many lenders if you can afford the higher annual percentage rates and payments. Before applying, learn how bad credit personal loans work and what borrowing costs you can expect. Some bad credit lenders are predatory, and knowing how to spot them could keep you from being exploited.
What are bad credit loans and how do they work?
The main differences between a bad credit personal loan and any other personal loan are the APRs and fees, which are usually much higher when a borrower has bad credit. Otherwise, bad credit loans work the same. You receive all your funds at once and pay back the balance, plus a fixed interest rate, on a monthly basis over the course of one to seven years.
What to consider when getting a bad credit loan
There are both pros and cons to bad credit personal loans. Although they can offer a way to get fast cash if you’re in a financial crunch, bad credit loans are more expensive because lenders will charge higher interest rates or more fees. You may also be limited in how much you can borrow and how long you have to repay your loan.
Bad credit loans cost more
A low credit score tells lenders you may have had past issues with missing payments or defaulting on loans. They see a low credit score as a sign of higher risk. Because of this perceived risk, lenders charge higher interest rates to help ensure they make money. Bad credit personal loan rates may reach 35.99 percent. They can be even higher for other types of bad credit loans.
Higher interest rates also mean higher monthly payments and more interest paid over the term of the loan. You may also be charged higher origination fees, which are usually deducted from the loan funds. You’ll receive less money to use but will still be charged interest on the full amount.
You may not be able to borrow as much
Lenders may limit how much they lend a bad credit borrower. That’s because borrowers with a history of credit trouble are more likely to default. Lenders often cap the loan amounts to reduce the amount of money they could lose.
Your term will likely be shorter
If you have a bad credit history, you may not be eligible for a lender’s maximum term. Bad credit loan lenders may prefer that you pay your loan off faster to reduce the odds that you’ll default over a longer time period. Use a personal loan calculator to make sure the payment fits into your budget.