Costly Cash: Bad Credit Personal Loans

Personal loans are unsecured, not requiring collateral. Most of the time, applying for bad credit personal loans is not much more difficult than applying for a credit card. But with two key factors working against you-bad credit and the loan being unsecured-your interest rates will probably be through the roof.

That said, even a bad credit loan of 20% interest rate on $5,000, paid over 5 years, may be affordable when broken down to monthly payments, and just what you need to help cover an emergency.

In setting the rates for bad credit personal loans, lenders take basic borrower details into account besides your credit score, like income, job circumstances, amount requested and the length of the repayment term.

How much can you get?

The amount available in bad credit personal loans varies by lender, and also by your credit score. Many have standard loans of between $5,000 and $10,000; some go higher. There are lenders who offer smaller amounts for checking account emergencies and other immediate problems of up to $1,000 within 12 hours if you are approved. The repayment terms on these amounts are shorter.

Payday loans are another form of personal loans. These loans give you a smaller amount of cash in exchange for a post-dated check that is cashed on your next payday. For these loans, many lenders require a valid checking account, a job with at least $1,000 income per month, and no more than one other outstanding payday loan.

Check with your bank or credit union first

Before applying online, check with your bank or credit union for personal loan availability. Even with a low score and past credit report problems, if you've maintained an account in good standing for several years at your local bank, you may be eligible. In any case, you should rate shop before applying anywhere, online and off.

Don't apply to several lenders at once

Personal loans (including bad credit personal loans) don't show up on your credit report the same way that auto loans or home loans do in regards to rate shopping and your Fico score. Every time you apply for a personal loan, it counts as a separate inquiry on your credit report, thus dropping your score by a small number of points. If several inquiries for unsecured loans (personal or credit card) are made in a relatively short time, the score will be dropped by more than the sum of the individual inquiries, as this behavior indicates that a consumer is getting into cash trouble and will likely have future repayment problems.

When applying online, it makes sense to find a third-party company that will get bids on your application from several lenders at once. The third-party company (like a LendingTree or NexTag) pulls just one credit report, which is sent to each lender for bidding. This way, you get the benefit of competing bids for your business without the multiple credit report inquiries.

It's always hard to be in a cash crunch. But in most cases, you'll find lenders who will give you bad credit personal loans, if you can't avoid or will pay the higher costs. In any bad credit situation, get help so that overall you'll be on the road to recovery. A great start is by getting a free credit report without a credit card, available online today in many varieties.