Personal Loans for People with Bad Credit History

There are some banks and lenders that provide personal loans for people with bad credit history, even though getting these loans is quite difficult. It helps if you have some personal asset that can be secured as collateral.

Finding personal loans for people with bad credit history is not an easy task by any means, and this is something that can be quite distressing for some people. Credit history is something that is built up over time, and it reflects the general financial management capabilities and the credit history of an individual. When a bank or a financial institution gives a person a personal loan, it needs to know the chances of that individual repaying that loan at the right time.

Failure to repay these loans by the individual would mean that the bank has to sustain a loss, and this is something that the bank needs to protect itself from. Hence, they carefully analyze the credit history and the credit report of the individual to see what their past performance has been like, and what the chances are of him/her repaying the loan on time.

Bad credit history cannot be erased, nor can it be reversed, and this is a major hindrance for getting personal loans. It is for this reason that personal loans for people with bad credit history is very hard to come by.

Personal Loans for Someone with Bad Credit History

All this does not mean that it is not possible to get personal loans at all, if you do not have a good credit rating. There are still some options available to you, but the only difficult part is finding someone willing to take that risk. It is important to not get discouraged by rejection, and to keep trying to get a personal loan nevertheless. There are 2 options available to people with bad credit history in such a scenario.

One of the most popular solutions to this problem are secured loans. This means that the individual gets a personal loan, by securing a personal asset as collateral. Banks are always willing to consider this option, because it means that even if the individual defaults on his payment, the bank can sell the asset and recover some proportion of the loan amount. Of course, the individual is notified of this sale before it occurs, and he/she is given sufficient time to repay the amount. The bank will sell the asset only if it is sure that the amount if not going to be recovered in any other way. The most common assets for personal loans for people with very bad credit history are houses, property, cars and other valuable items like family heirlooms.

The other option to look out for are unsecured loans. In this case, there is no collateral asset, so the risk incurred by the lender is much higher. These loans are the most difficult to get, because the lender stands to lose the loan amount entirely if the individual cannot pay, but there are some specialized banks that do offer these kinds of loans.

Admittedly, the interest rates on these loans is very high, and this reflects the high risk associated with them. Banks and financial institutions that offer such loans are known as sub-prime lenders. Even though this option exists, it is very difficult to get such bad credit loans, especially after the well documented sub-prime crisis hit the American economy last year. This crisis was a direct result of too many unsecured loans doing the rounds in the market.

Personal loans for people with bad credit history is difficult, but not impossible. After all, there are many individuals who have to face this problem from time to time, and the Government has made it possible for them to receive loans. People who undergo bankruptcy have to start their financial rehabilitation and credit repair somewhere, but this is something that takes time. The important thing is to not lose hope, and to have faith that you will pull through these dire circumstances.

 By Rahul Thadani