What is a Poor Credit Loan?
A poor credit loan is a type of personal loan that allows those with low credit scores or even zero credit to get access to loan funds. Generally, a credit score below 630 constitutes bad credit. There are many types of poor credit loans, and many institutions that offer them.
How Do Poor Credit Loans Work?
People with a bad credit score usually have a history of paying debts late or avoiding payments completely. For this reason, lenders consider poor credit loans to be riskier than good credit loans, and they compensate for the risk by charging a higher interest rate on the loans. The lender will run a credit check and ask for banking history to make sure the borrower is able to pay off the loan in a timely manner. Once the loan is approved, the borrower will have quick access to the funds.
Secured vs. Unsecured Poor Credit Loans
A poor credit loan may come in the form of an unsecured loan, like a credit card, student loan, or personal installment loan. These types of loans require the borrower to sign a contract agreeing to the terms of the specific loan, and the lender can seek payment through a collection agency if the payments are not made.
A secured poor credit loan will require the borrower to use something like a car, house, or expensive item to secure the loan. This means the lender can legally take the collateral from the borrower if the loan is not paid off.