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What is a Bad Credit Loan?

Posted on Dec 17, 2012 by Albano Stefani

Like millions of Americans across the country, you might be struggling with a few debts on your credit report. Having these debts could easily lead to a less than stellar credit score that can greatly impact your ability to borrow money and finance purchases. Traditional sources such as banks and credit unions will most likely be reluctant to lend money to someone with a bad credit score.


A bad credit loan is simply a loan offered to those with bad credit scores and credit histories. This includes having a history of slow or missed payments, bankruptcy, defaults and arrears. There are two types of bad credit loans that are available:


  • Unsecured personal loans – These loans are based on the credit score of the applicant. Those with a very low credit score may need another person to co-sign the loan or put up collateral, usually in the form of real estate or other valuable property.
  • Secured loans – These loans differ from unsecured personal loans by requiring an advance deposit, which is held in escrow until the loan is repaid. When the loan is finally repaid, those who took out the loan not only get the deposit back, but they also have the option of switching to an unsecured personal loan or another line of credit in the future.


Other types of bad credit loans include car title loans, where you use your car’s title as collateral and payday advance loans, where you borrow against your incoming paycheck.


Keep in mind that while most bad credit loans are legit, there are some companies out there that are ready and eager to scam unsuspecting customers. Careful and thorough research is the key to avoiding many of these scams, plus it gives you the upper hand when you speak to a genuine bad credit lender.

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