Getting loans is a wonderful thing because it allows people to realise their dreams, whether they are buying a new home or a car. However, loans come with their own responsibility i.e. paying the monthly instalments on time. If a person does not pay his monthly instalments in time, he risks damaging his financial future.
Most debt counsellors advise their debtors to use personal loans to cope with monthly payments for their existing loans. This can be difficult for people whose debts have gone beyond a certain point.
As a matter of fact, sometimes the borrower misses so many monthly payments that his credit score ends up plummeting to a point where getting new credit becomes too difficult. If the situation has gone this far, it means that the debtor would be turned down even for new personal loans to cope with the monthly payments.
This results in a vicious cycle being born where poor credit prevents the debtor from getting personal loans while he needs the personal loans to rebuild his credit to a respectable level. This is where the concept of bad credit personal loans enters the picture.
Bad credit personal loans, as the name suggests, are personal loans designed for people who cannot boast of the comfort of having a good credit score. The difference between a bad credit personal loan and a general personal loan is the matter of interest rates.
The interest rates of bad credit personal loans usually tend to be on the high end because they are proportional to the extent of risk that the lender is taking by forwarding money to the buyer. In contrast, the interest rates on general personal loans tend to be lower, in relative terms.
Like general personal loans, bad credit personal loans can also be categorised into two categories, namely secured and unsecured. Secured bad credit personal loans require the borrower to put up collateral so that the lender can recoup his money if the borrower is unable to pay it back.
Unsecured bad credit personal loans are personal loans that do not require collateral. Owing to the fact that the risk is high for the lender because of the combined problems of no collateral and a bad credit score, the interest rates for these types of loans tend to be exorbitantly high. This simply means that an individual needs to be very careful when going for bad credit personal loans, whether unsecured or secured.