Bad Credit Personal Loans

Bad credit personal loans are unsecured loans available for people with bad credit. Lenders allow bad credit borrowers to borrow as much as $100,000 with interest rates that vary between 7% and 25%, giving you the opportunity to fund your goals.

Bad Credit Personal Loans are Unsecured

Since bad credit personal loans are unsecured, they do not require collateral (valuable items the creditor can take if you default on the loan), which is ideal for borrowers with bad credit that don’t have property to use as collateral. Unfortunately, this lack of collateral will cost you.

Bad credit personal loans do not require collateral, so there is no guarantee that the loan will be repaid. Lenders charge interest rates that are higher than secured loans (like home loans or car loans) because they understand that there’s a greater chance that borrowers may default on an unsecured loan. Combine the risk of an unsecured loan to the risk of lending to a borrower with bad credit, and the interest rates jump even higher.

Who Cares About Bad Credit?

Bad credit is often the result of poor borrowing habits that are shown on your credit report and are reflected in your credit score, a 3-digit number that evaluates your ability to handle future loans. Low credit scores (619 and below) can be a result of a number of factors, including high debt and/or poor repayment habits. Lenders consider low credit scores warning signs that indicate borrowers are less likely to repay debts.

Learn credit basics so you can understand why you have bad credit and what you can do to improve your credit, because bad credit impacts potential loan offers.

Bad Credit Affects Your Loan Options

Since people with bad credit have low credit scores, there’s a higher chance that they will default on their loans. Lenders recognize this risk and will either avoid lending to bad credit borrowers or charge them higher interest rates.

Lenders providing bad credit personal loans understand that many people with bad credit have made credit mistakes but are ultimately capable of repaying debt. Lenders still charge high interest rates to cover any potential losses, but sometimes a bad credit personal loan at a higher rate is better than not getting a bad credit personal loan at all.

Bad Credit Personal Loans & Higher Interest Rates

It’s important to recognize how higher interest rates can increase the overall cost of the loan as well as the monthly loan payments.

  • Loan Balance: $10,000 // $10,000 // $10,000
  • Loan Term: 60 months // 60 months // 60 months
  • APR: 6% // 10% // 20%
  • Monthly Payment: $193 // $212 // $265
  • Overall Interest Paid: $1,600 // $2,748 // $5,896
  • Total Amount Repaid: $11,600 // $12,748 // $15,896

*APR stands for Annual Percentage Rate and refers to the interest rate charged over a year’s period of time. To determine monthly payments, multiply the APR by the loan balance and divide by 12. Lenders and borrowers use APR to compare loan costs.

The table demonstrates how the cost of a loan can significantly vary due to the interest rate alone. In this case, having an interest rate that is 14% higher results in paying $4,296 more over the life of the loan. Decide if you want to take on these additional costs before applying for a bad credit personal loan.

Understanding how interest rates can affect the cost of the loan will also encourage you to carefully compare bad credit personal loan offers so that you agree to the best terms and lowest interest rates available to you.

Bad Credit Personal Loan Decision

Though bad credit personal loans are costly, they do provide borrowers with funds they need to meet their financial goals. If getting a bad credit personal loan makes sense for your financial situation, great! If you wanted a bad credit personal loan for something that isn’t at the top of your priorities, consider waiting. Borrowers that wait can improve their credit and start saving for the future. Take the time to understand bad credit personal loan costs and terms before making your decision.