Getting An Unsecured Loan For Bad Credit – Please Don’t

Getting hammered by debtors makes people contemplate a lot of things. With so many lenders offering to consolidate your debt into one payment using unsecured loans for bad credit, it’s a tempting proposition. It’s never a good idea, however, to get unsecured loans and bad credit unsecured loans are an even worse idea.
An unsecured loan, also known as a signature loan, has no collateral to back up the loan amount. These types of loans are notorious for higher interest rates. That’s because the only recourse for nonpayment of funds is a judgment or lien, which costs more money to the lender. The loan is more risky, in other words. The riskier the loan, the higher the interest rate, which is why bad credit loans are the highest interest rate possible (usually as high as the law allows).

An easy way to explain the risks of getting an unsecured loan for bad credit is to think about friends borrowing money. Imagine you have three friends who need to borrow $100. The first friend has a history of paying back every debt to you as soon as possible, sometimes earlier than required; additionally she has a bracelet you can hold onto that you can sell if she doesn’t pay it back. The second friend has a history of paying you back, but nothing to give you if she doesn’t. The last friend has a history of not paying you back for ages and has nothing to give you either to back up the loan. Who is it you trust most? Even without the collateral, you trust the friend who pays you back on time, and even early is the most likely candidate to gain your trust. As such you might even lend to her without the bracelet. While this is a simplistic example, it’s relatively similar to what a bank makes it decisions on for interest rates.

In the examples above, the friend with the history of bad payment would get a bad credit loan. Typically her payments would end up costing $175 after she’d paid it back. The other friends would end up paying about $103 to $125 respectively. That’s the price of having a bad credit unsecured loan.

The interest rate isn’t the only problem with bad credit loans. Bad credit unsecured loans also have limited amounts available. In general lenders are unwilling to part with a great deal of money to bad credit borrowers. Most unsecured loans for bad credit borrowers are limited to only $500-$1000. That’s a great amount for doing something like rebuilding your credit, but it’s generally not useful for any other purpose.

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