People who are going through hard financial situation and have a questionable credit history can consider bad credit loans as one of favorable options to meet the urgent need of cash. There are two types of bad credit loans. One is called secured bad credit loans and the other one is called unsecured bad credit loans. Each type of bad credit loans has its own advantages and disadvantages.
Secured bad credit loans:
You get a secured bad credit loan in exchange for a security deposit. This is equal to the amount of loan applied by the consumer, or valuable assets owned by him. You will get back the security deposit once you have paid the loan amount in full without any defaults. Most people consider these types of secured bad credit loans to build up their bad credit history. They want to see some positive accounts in their credit report that will help them in getting future credit. Using that money, you will have the option to open multiple secured credit cards and boost up your credit file with positive payment history. The FICO scores will go up because of the account variety. The only downside of this type of bad credit loan is that you have to show some assets to secure the loan. And if you default in your payments, your asset will come under risk.
Unsecured Bad Credit Loans:
This type of bad credit loan does not require you to come up with the money or assets to secure the loan. You don’t have to show any collateral to secure the loan. The disadvantage is that these types of unsecured bad credit loan are charged with very high fees and interest rates. You might be paying an interest rate of 30% or more on this type of loan. If you are in a financial trouble and are paying just a little more than the minimum, you will hardly make any dent on the principal amount. This kind of loan is not good for those people who are already going through a hard financial situation and can’t afford to make the monthly payments.
If you are looking for a bad credit loan, make sure that you have the ability to pay back the monthly payments. This type of loan will help you to build up your bad credit history as long as you are making monthly payments on time. Be aware of the fact that if you default in your monthly payments, your delinquency will still be reported to the credit bureaus even though the bank has your assets as a security.