Bad Credit Loans Explained

Simply put, bad credit loans are loans for people with bad credit. Modern living comes with so many expenses and sometimes your income will just not cover it. This means that you will not be able to handle some of the payments on different things whether on a weekly or monthly basis. This could include mortgage payments, credit card payments, rent, and car notes among others. It would be so simple if we all had some reserve that we could just dip our hands into every time we need money, yet the reality for most of us is we do not. What happens, therefore, is that you will end up with a bad credit score.


Bad credit scores are mathematical computations done by credit score agencies and determine an individual’s ability to manage their financial situation. It normally uses a numerical system from 0 to 1000. Any individual with a credit score of above 650 has good credit ratings.  Anyone with credit ratings of below 620 has a poor credit score and will not be creditworthy because they are a bad risk when it comes to borrowing money.

What are bad credit loans?

A bad credit loan is for borrowers with weak or bad credit scores. There are many financial institutions that offer them including banks and online lenders.  Bad credit loans are expensive because lenders will charge a higher interest rate on them as a way of protecting themselves against defaults. The higher interest rate is also due to the fact that the lenders will normally take insurance against the loan they have given you so that they have that coverage in case you’re not able to pay them back.

 If you are desperate for cash, Payday Loans are a good idea, but, be careful about them and make sure you understand the fine print before you sign on the dotted line.

 Types of bad credit loans

 There are two types of bad credit loans, these are:-

 Unsecured bad credit

These loans are technically based on good faith, the lender only has the contract which shows that you are willing to adhere to the terms and conditions of the loan. If you are unable to repay the loans, they can take legal steps to recover the money or use collection agencies. Such loans include student and credit card loans amongst others.

Secured bad credit

 For such loans, you need to have something of value that the bank can hold onto in case you are not able to pay the loan.  This may include a house, a car, jewellery amongst other assets. The lender has the legal to sell off what they have as collateral to recover their money.

Bad credit loans are a great option for people with poorer scores; however, just like loans given to people with good scores, you are still under an obligation to pay the money. You should, therefore, be careful about entering into more debt by taking the bad credit loans.