What are the Different Types of Personal Loans for Bad Credit?

When someone's credit has gone through some difficult times, it may be hard to obtain a personal loan. Fortunately, there are some types of loans that do not require perfect credit in order to qualify. In fact, there are several different kinds of personal loans for bad credit that may be ideal, depending on the specifics of a situation.

One quick and easy option is to go with a payday loan. Personal loans of this type usually require nothing more than proper identification, proof of a permanent residence, and verification of income. Some will also require a copy of the most recent checking account statement as well. There are usually limits on the amount of the loan and the interest can be extremely high.

Payday loans are perhaps the easiest of all personal loans for bad credit to manage. When a loan is approved, the borrower must provide the lender with a check that covers the amount of the loan plus the applicable interest. The check is held for the agreed-upon period of time, usually two weeks. At the end of that period, the lender deposits the check. Assuming that the bank does not return the check, that is the end of the transaction.

If someone needs a little more money than a payday loan can accommodate, a car title loan may be an option. Personal loans for bad credit of this type are based on the current value of a vehicle, and often allow the borrower to make payments over several months. The title to the vehicle is held as collateral for the loan. Once the borrower has repaid the loan in full, the lien on the title is lifted and the car title is returned.

If the credit is less than excellent but overall still fairly good, there is a good chance someone can qualify for a high-risk secured loan. Banks, finance companies, and other lending institutions sometimes offer these types of personal loans for bad credit, just at a higher rate of interest. As with most secured loans, the borrower will need to provide proof of employment, have some type of collateral that is at least equal to the amount being borrowed, and be willing to undergo a credit check. While the interest is likely to be somewhat high, lenders who offer these kinds of loans often report timely payments to the major credit reporting agencies quickly, which may help the overall credit rating.

Just because someone can’t walk into a bank and get an unsecured loan does not mean that he or she is without options. Personal loans for bad credit can be a a gateway to healing a damaged credit rating, especially if the borrower makes use of these options in a responsible manner.