There are quite a few different types of loans for people with bad credit available. Understanding how these loans work can help you determine which option is right for you. In the end, this can help you make a smarter decision regarding your finances, improving your chances of paying your loan back on time and in full.
Payday loans are one of the most popular types of bad credit loans. These loans are designed to be short-term loans that are paid back in a matter of weeks rather than months or years. As you might guess from their name, the basic concept behind these loans is that you should pay them back by your next payday. In order to qualify for one of these loans, you usually just need to bring in a copy of your most recent paycheck stub. Chances are you will also need a photo ID and your bank account information so that the payment for the loan can be taken out of your account on the due date.
One of the main benefits of these types of loans is that they don’t check your credit score in order for you to qualify. As long as you can prove that you are employed and have a bank account, you will most likely be approved for the loan. Despite how easy these loans are to qualify for, they do have some drawbacks. For one thing, they tend to have relatively high fees. This is especially true if you miss your payment. Additionally, they are generally for relatively small amounts of money. This makes them fairly useless for larger purchases.
Sometimes, lenders are willing to give bad credit loans for larger purchases such as houses or cars. These types of loans typically require much more documentation than payday loans. Not only do you need to prove that you have income, but you also may need to provide detailed banking information, a list of your current expenses, or information about your assets.
Because these loans are for higher dollar amounts, they are usually harder to qualify for. Depending on how bad your credit is, you may need a cosigner who has good credit in order to qualify for the loan. You may also need to put up some type of collateral to secure the loan in case you default on your payments. Either way, chances are your loan will have a much higher interest rate than a borrower with good credit would have to pay. This can significantly increase your monthly payments. You need to take this into account when deciding how much money you can truly afford to borrow. The last thing you want is to take out more money than you can afford to pay back.
Now that you have a better understanding of how loans for people with bad credit work, you can decide which option is right for you. In general, if you have a relatively small, short-term expense, payday loans are a good option. For larger expenses, talk to a traditional bank about whether or not they have any bad credit borrowing options available.