Exploring Loan Options for Bad Credit
Having bad credit can make securing a loan feel impossible, but it doesn’t have to be. Whether it’s a personal loan, auto loan or just a loan that you’re using to build up your credit, there are options for you.
In this article, we'll dive into the best loan options for people with bad credit, outlining how to apply and the entirety of the process from application to receipt of the funds. Let’s dive in.
Loan Options for People with Bad Credit
Before we get into the specific loans that you can (or should) choose from, let’s first discuss the various types of loans that are at your disposal. If you have bad credit, this likely means that you have had some type of problem like late payments, bankruptcy or other financial missteps.
Fortunately, this doesn’t mean that you won’t be able to get a loan at all. Below, we will discuss three primary types of loans that typically work best for people with bad credit. The three best loan types are: personal loans, secured loans and payday loans. Let’s break down what each loan type is and present you with the best option for each.
Personal Loans
A personal loan provides you with a lump sum of money to be repaid over time, typically with fixed monthly payments. The luxury of these loans are that they are extremely versatile and can be used for pretty much anything. This includes debt consolidation, home improvement, medical expenses or any major purchase that you might have.
Pros
- Extremely versatile when it comes to use, giving very little (if any) restrictions.
- Unsecured loans, meaning there aren’t any collateral requirements.
- Most lenders approve and distribute the funds extremely quickly.
Cons
- Given your poor credit, these loans typically come with a steep interest rate.
- Most personal loans come with multiple fees and penalties, increasing the cost of borrowing.
- Better suited for short-term or medium-term financial needs.
Upgrade Personal Loan
Upgrade offers the most well-rounded personal loan for individuals with bad credit. Offering two to seven year terms, the loan only requires a 580 credit score and comes with some great perks.
Pros
- Offers mobile app to manage loans.
- Minimum credit score of 580.
- No minimum income requirement.
Cons
- Origination fee.
- No flexibility in selecting payment date.
- APR up to 36%.
Secured Loans
Secured loans are loans that require collateral to guarantee repayment. Oftentimes, the collateral put up against these loans include your house, car or a savings account. If you have poor credit but are in a good financial position, this loan type might be the better option for you as they offer lower interest rates, higher borrowing limits and have better approval chances.
As you’d expect, these loans come with a major risk: if you default or miss payments, you risk losing the pledged asset.
Pros
- Lower interest rates due to the collateral posted for the loan.
- Lenders will approve higher limits due to the collateral posted.
- Timely repayment on your secured loan can significantly boost your credit score.
Cons
- If you default on the loan, the lender can seize your posted collateral.
- Secured loans can take longer to be approved as it requires the lender to evaluate and appraise the collateral posted.
- Highly risky as you could potentially lose your collateral.
Digital Federal Credit Union Secured Loan
Digital Federal Credit Union (DCU) offers an incredible secured loan option. They offer up to 120 months for the loan with very competitive interest rates.
Pros
- APR starting at 3.5%.
- Loan terms up to 120 months.
- Accepting of bad credit.
Cons
- Must have a DCU savings account to post collateral.
- Minimal physical branches available.
Payday Loans
Payday loans are short-term, high-interest loans meant to provide quick cash to borrowers ahead of their next paycheck. Typically, these loans are in relatively small amounts with repayment required in a few weeks at most.
These loans are easy to access. However, they come with extremely high fees and APR. You should view these loans as intended for emergencies only.
Pros
- Funds are typically available within 24 hours.
- Very accessible to people with bad credit.
- Only require short-term commitment.
Cons
- High interest rates and expensive fees.
- Can result in a debt cycle due to difficulty of repayment.
- Missed payments can damage credit and lead to additional fees.
Viva Payday Loans
Viva Payday Loans are your best bet if you’re in a pinch and need some cash fast. Offering accessible loans through their digital platform, Viva welcomes all credit scores, dollar amounts and durations of loan.
Pros
- Very accessible to individuals with bad credit.
- Very flexible loan options.
- APR as low as 6%.
Cons
- APR up to 36%.
- Highly risky due to the high interest rates and short-term lending.
Final Thoughts
The best loan options are dependent on your personal financial position and credit history. Analyze your situation and circumstances then pursue a personal loan, secured loan or payday loan depending on your unique needs.