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A bad credit score may make it difficult to obtain a traditional loan or a credit card. Mainstream lenders rely almost exclusively on a person’s credit score when determining eligibility. However, this does not mean that a poor credit score will definitely keep you from obtaining credit. With the increase in people with bad credit, the market for obtaining this type of credit has increased.

There are a few different things that are typical of most bad credit loans. These include:

Interest Rates

Since a lower credit score may seem like a higher risk to a creditor, many bad credit loans have a higher interest rate. However, it is possible to still obtain a loan with an interest rate that does not break the bank. Once you have established steady payment history, it can be possible to renegotiate at a lower rate.


One of the easiest ways for a person with bad credit to secure a loan is to offer something of equal value as collateral. Collateral represents a much higher chance that a lender will recoup all or most of their investment in case the loan ends up in default. If this happens, the lender will take possession of the collateral and sell it. The proceeds from this sale will be applied to the balance owed to the lender.

Usually, collateral comes in the form of whatever the borrower is using the loan to purchase. For example, a mortgage loan is used to purchase a piece of property. In that situation, the piece of property would be used as the collateral. If the loan is not repaid, the lender will claim ownership of the property. This process is called foreclosure.

There are other forms of collateral that can be used for different types of loans. An auto loan would use the purchased vehicle as collateral. Many times with a personal loan stocks, bonds or even jewelry can be offered as collateral. The different types of accepted collateral is limited only by what the lender will accept.

Payday Loans

Payday loans are one of the single largest resources to a person with bad credit. While they are a relatively new phenomenon, payday loans, also referred to as cash advances, are becoming more and more popular in society today.

The way a payday loan works is the borrower typically fills out a form online that request different, basic pieces of information. Usually no credit checks are needed with a payday loan which makes it perfect for a person with bad credit. Once the form is submitted, typically the funds can be released and in the recipient’s account within 24 hours. The loan is usually scheduled to be repaid when the borrower receives a future paycheck.

While the stated interest charges on a payday loan may seem high, this is offset by the short amount of time that the loan is for. Typically the interest is figured on a flat fee basis, determined by the amount that the person is borrowing.

Payday loans simplify borrowing in a way that is difficult to find anywhere else. This is especially true for someone who has a low or middle credit score.

Government Programs

If you are looking to purchase a home and have bad credit, there are different federal mortgage programs to consider. One of the most popular and well-known programs is available through HUD. HUD, or US Housing and Urban Development, can provide home mortgage loans with much more attractive rates than are usually available to a person with poor credit. This is accomplished by the government insuring the loan, or making a guarantee of repayment if the borrower defaults. Since the loan represents a much lower level of risk, the lender can offer better repayment terms. Lists of agencies that offer HUD programs can be found at or by calling 1-800-569-4287.

Brokerage Company

Another way to secure a loan if you have bad credit is by using a lending brokerage company. These companies do not lend any money themselves. They accept all of the usually required loan information and submit it to a wide variety of companies that specialize in extending bad credit loans. Many of these lending institutions deal only with brokerage firms. By using a broker, a borrower has access to a much larger list of potential lenders. Going this route will also save quite a bit of time that would be spent submitting applications to each individual company. Since credit can be more difficult to attain with bad credit, this process can be quite lengthy if done on your own.

A negative credit score is no longer something that guarantees an inability to obtain a loan. It can also be an excellent way to rebuild your credit score. This will then lead to the ability to obtain credit much easier and at much more attractive rates.