A bad credit personal loan is a financial solution for an individual who has bad credit and may or may not have any collateral
to pledge against the loan, like an automobile.
-- Credit Tip by FindLocalBanks.com
Federal law requires that all creditors must state the cost of their credit in terms of an Annual Percentage Rate (APR). This rate takes into account how the loan is repaid on a yearly basis, and allows you to accurately compare the cost of credit among lenders. For example: You borrow $1000 for one year and pay a finance charge of $100. If you can keep the entire $1000 for the whole year and then repay $1100 at year’s end, you are paying an APR of 10 percent. But if you repay the $1000 and finance charge (a total of $1100) in twelve equal monthly installments, you don’t really get to use $1000 for the whole year. In fact, you get to use less and less of that $1000 each month. In this case, the $100 finance charge amounts to an APR of 18 percent.
There are two types of bad credit personal loans:
- Non-secured bad credit personal loan:
With a non-secured bad credit personal loan, the borrower is not pledging any collateral against the loan.
The lender is relying on the borrower's signed promise to repay the loan. These types of loans are often referred
to as signature loans. If the borrower fails to repay a non-secured bad credit personal loan, the lender has
no recourse other than to start collections proceedings or turn the loan over to a collection agency. Since the lender
is at great risk of losing money, the interest rate on a non-secured bad credit personal loan will likely be near the
maximum interest rate allowed by the applicable state for consumer loans.
- Secured bad credit personal loan:
A secured bad credit personal loan will require the borrower to pledge collateral against the loan (such as a car, furniture or other valuables).
In the event the borrower does not pay the secured bad credit personal loan, the lender can claim the collateral and sell
it to help pay for the outstanding loan balance. Since the lender has some collateral, the interest rate on a secured bad credit personal
loan will likely be less than the interest rate on a non-secured bad credit personal loan.
-- Credit Tip by FindLocalBanks.com
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. For example: Suppose you borrow $1000 for one year, and the interest is $100. If there is a service charge of $10, the finance charge will be $110.
Although these types of loans carry a high interest rate, a bad credit personal loan can be a source of short-term funds
for a person in a financial bind.
Credit.com offers a service that can help you get a personal loan.
Click Personal Loans
