An unsecured loan is a credit given to borrowers without any collateral attached to it. This is more like a personal loan offered by financial institutions in lieu of higher fees and interest rates. Unsecured loans for bad credit are also extended by these institutions; however it is a riskier venture for any financing company. Bad credit by itself is a cue that the borrower is a defaulter in repaying their previous loans, which may include credit card bills/ personal loans/ auto loans etc. Borrowers with a bad credit are termed as sub-prime borrowers.
It is always advisable to approach reputed companies for these kinds of loans, as they are more trustworthy. However, these companies may have terms and conditions that are a little more stringent for unsecured loans for bad credit. These banks would require the borrower to be at least 18 years of age and to be employed. While there are Sub-prime lenders that are hassle-free and extremely liberal in their approach to lend money; but one should be wary of them and take note of their fine line terms and conditions. Some of them charge interest rates as high as 500 per cent, and as per the Centre for responsible Lending, the interest rates average out to 225 per cent – 300 per cent of the loan amount. It is imperative to check the state laws and the payment terms before taking a decision on applying for unsecured loans.
A bank would assess all the bills and assets of the borrower to see if they are in a position to repay; however, the secondary market lenders do not generally do these checks. One must be heedful and bear in mind that to get an unsecured loan for bad credit would call for the interest rates and bank fees to be higher than the ones with good credit. It is good to consult a credit counsellor before treading this path.
Nevertheless, one must always remember that the loan eligibility granted would not mean they can afford it.