Bad Credit Loans
Bad credit loans are becoming more and more common during the current credit crunch. If you have bad credit and require a loan, you have options.
Payday Loans
Payday loans are a quick and easy way to raise cash. However, you’ll pay extremely high interest rates. Before considering a payday loan you should thoroughly review the terms and conditions of the offer.
Payday loans usually range from $500 to $1500. They are a short term loan and not suitable for automobile or larger asset purchases. Most lenders will deposit up to $1500 into your checking account, within 24 hours, with no credit check.
Payday loans are now widely available online. This allows you to thoroughly shop lenders and compare fees and interest rates. Average interest rates for these types of loans can be very high:
| Term | Average Interest Rate* |
| 1 week | 911% |
| 2 weeks | 456% |
| 1 month | 212% |
* Interest rate based on the average for the industry. Loan rates for specific companies widely vary.
Debt Consolidation Loans
Debt consolidation loans are widely available from various types of lenders. Some operate for profit, others are non-profit.
The debt consolidation loan process can be long. It involves negotiating with all of your creditors and reaching mutually agreed upon settlements. The goal is to combine all of your loans and bills into one loan, which has a lower monthly payment.
These loans can, in some cases, negatively impact your credit. You’re negotiating settlement agreements with your creditors and in most cases, you will be paying your loans off for lesser amounts than you originally agreed to.
Home Equity Loans
If you have bad credit but have equity in your home, a home equity loan is probably your best option. By borrowing against your home equity, you can in most cases receive loans even with bad credit. Your house backs your loan. If you default on your loan your home will be foreclosed on.
These types of loans traditionally carry fees and closing costs. However, when compared to other types of loans, these loans are usually offered at the best rates, even for people with bad credit. Additionally, the interest paid for the loan is often tax deductible.
Credit Cards for people with Bad Credit
Credit cards are available for people with bad credit. A secured card isn’t really a loan. With a secured card you put up “security” (often $500 to $1000) and the lender issues you a card with a credit limit in the same amount. If you default on the card they keep the security you sent in when the card was issued. These types of cards are only for people with the worst credit. They are used to rebuild credit.
A partially secured card is for the next tier of people with bad credit. You put up a partial security. For example, you put up $500 and receive a card with a credit limit of $1000. When you close the account you get your $500 back, usually with a little interest.
Unsecured credit cards are generally available for people with credit scores of 550 or higher. These cards will carry very high interest rates, usually the state allowed maximum. However, if used responsibly over time these cards can raise your credit score and you’ll receive better credit card offers in the future.
Parent Page: Special Finance