There are many types of loans available for consumers with bad credit. There are secured loans, unsecured loans, payday loans, car loans, personal loans (both secured and unsecured), home loans and so on. A lot is said about bad credit or good credit, but the interest rate on each type of loan depends on more than credit. Interest rates, terms, fees and amounts of loans are based upon credit scores, how long you’ve lived in your home, how long you’ve been at your job and your debt to income ratio, as well as your income.

A Secured loan is backed by collateral. Home and auto loans would be considered a secured loan. Conversely, an unsecured loan is one that is made without collateral. The secured loan has the lowest interest and, of course, the unsecured one has the highest. With good credit a consumer can expect to get a decent rate of interest on an unsecured loan, but unsecured loans with bad credit can expect terrible terms, high interest rates, extra fees and a lower amount lent.

Unsecured loans for bad credit borrowers are a disaster for their financial health. They cost thousands of dollars over the amount of the loan, compared to a good credit borrower. They often have fees which add hundreds of extra dollars to the loan.

Millions of people everyday get a poor score on their credit report. It’s nothing to be embarrassed about. However, some lenders that prey on people who have the dream of owning their own home or are unfortunately enough to have a sudden medical illness. Unsecured loans with good credit are a bad idea, let alone with bad credit. Whatever interest is on a good credit loan, the bad credit loan will double or triple the interest. That adds up to thousands of dollars.

Instead of an unsecured loan for bad credit, borrowers should think about repairing their credit. There are hundreds of different ways to repair credit, but the most successful ways are the following:

  1. Get a secured credit card. Lenders issue secured cards based on a deposit from the consumer. The deposit can be anywhere from $300-$500, which translates to the limit on the card. Twelve timely payments on the card raise the credit score.
  2. Visit a credit counselor who will consolidate your debt and help negotiate better terms for repayment with debts that are past due or overextended.

Whichever way you choose to go, repairing your credit or getting a bad credit unsecured personal loan, read the contracts carefully. Many contracts have hidden fees that are specific to bad credit loan and credit card applications. If the terms are outrageous, there is always another option.

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