A bad credit loan is a financial solution for an individual with a low credit score, short credit history, or no credit history. Financial missteps of late payments and missed EMIs, maxed-out credit cards, or high-dues on credit bills affect your credit history and lower your credit score.
A credit score can be considered:
- Fair credit if ranges between 580 to 669.
- Poor credit if ranges between 300 to 579.
FICO calculates an individual’s credit score using:
- Payment history: 35%
- Debts: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
Bad Credit Loan with Collateral
Loans for bad credit loans are either secured or unsecured. You can find such loans with various banks and credit unions. If you have a poor credit score, getting a secured loan against collateral like a home or car may be easier than an unsecured one as you are at risk of losing collateral, and the lender has the chance to get the borrowed fund in case of any default.
Though common secured loans are home equity loans and auto loans, you can find secured personal loans also with some lending institutions. Secured loans are generally available at favorable rates, higher credit limits, and flexible terms, as you have a greater incentive to repay your loan.
Banks’ loan terms are stricter than credit unions. Banks rely on credit history than your creditworthiness, unlike credit unions. Interest rates and other loan terms will depend on the lending institution.
Thus, if you have assets to be collateralized, you can get a loan easily, even if you hold back a poor credit history. To improve your credit score, you should develop long-term habits of paying your full bills on time and regularly. You should check your credit report to catch errors as it also affects your credit score.