Bad credit loans are a type of personal loan that is specially designed to cater to the needs of customers with a credit score under 670. A bad credit score can cause a lot of problems, especially in securing personal loans on rainy days.
Since there is more risk involved in lending money to people with a bad credit score, a bad credit score comes with higher interest rates and a heavier fee.
A bad credit loan can sound like a risky option, even to someone who needs financial help urgently. Understanding the pros and cons of this facility can help you take the right step for yourself.
Here is all you must understand about a bad credit loan.
Pros of a Bad Credit Loan
Any help can seem like a suitable option when you find yourself in financial trouble even though bad credit loans come with a higher interest rate compared to good credit loans, a desperate person in need learns to make the best of the given circumstances.
Before you let the interest rates sweep you off of your feet, consider these benefits of poor credit personal loans agreed on by professionals at Lantern by SoFi.
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Enjoy Flexible Lending Options
As you may already be aware, most personal loans require an excellent credit score to even consider a loan application. A bad credit loan is one of a few loan options specifically designed for individuals with a bad credit history. The lenders may still consider other factors while lending you money, but your credit score is not going to be a problem.
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Lower Interest Rates
You may think that bad credit loans come with unimaginably high interest and fees. Yes, these charges may be significantly higher than other types of personal loans but these rates will still be lower than credit cards and payday loans.
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Improvement in Credit Score
Taking a bad credit loan is your opportunity to redeem a good credit score. A bad credit score is not evidence of your negligence. Several circumstances can lead to these problems. Taking an opportunity to redeem yourself with timely payments of your bad credit loan can make a significant difference in your life.
Cons of a Bad Credit Loans
Just like every type of personal loan, bad credit personal loans can also have some risk factors and disadvantages involved. You must consider these disadvantages before taking a bad credit personal loan to meet your financial needs.
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High-Interest Rates
Bad credit lenders charge higher fees and steeper borrowing costs than traditional institutions. Personal loan interest rates can go up to 36%. The worse your credit score is, the higher the interest rate can go. It is best to do the necessary calculations beforehand.
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Collateral requirements
Bad credit loans may require collateral, known as secured loans. Collateral can provide you access to lower interest rates and fees. However, it can open you to other risks such as defaulting. It can result in the lender seizing your collateral.
