If you have a low credit score or bad credit history, getting a personal loan can be tough. But bad credit loans are designed for people with bad credit scores. These come in different forms, secured loans, unsecured loans and bad credit personal loans.

Features

• Credit Score. Your credit score is a key factor in determining eligibility and interest rates for bad credit loans. A bad credit score limits your options but many lenders still offer loans for people with poor credit.

• Credit History. Lenders will pull your credit report from the three major credit bureaus to check your credit history and creditworthiness.

• Origination Fee. Some personal loan providers charge an origination fee, which is a percentage of the loan amount deducted from your loan funds.

• Prepayment Penalties. Be aware of any prepayment penalties, which are fees charged if you pay off your loan early.

Pros and Cons

Pros

1. Access to Funds. A bad credit loan allows people with bad credit to borrow money even with low credit scores. This can be for emergency expenses or debt consolidation.

2. Debt Consolidation. Debt consolidation loans help in combining multiple debts into one loan with one monthly payment, making it easier to manage and potentially reduce the total interest paid.

3. Credit Improvement. Managing and repaying a bad credit personal loan successfully can improve your credit history and credit scores over time, which can lead to better loan terms in the future.

Cons

1. High Interest Rates. Bad credit loan rates are higher because of the risk to lenders, so you’ll pay more monthly and overall loan cost.

2. Fees and Charges. Bad credit loans come with origination fee, prepayment penalties and other charges that add to the loan cost.

3. Strict Requirements. Even with a bad credit loan, there might be a minimum credit score requirement and lenders will check your debt-to-income ratio and minimum annual income so loan approval can be tough for some borrowers.

How to Apply for a Bad Credit Loan?

1. Choose A Lender. Select a reputable lender, whether online or physical location, that complies with state laws and federal regulations.

2. Gather Required Documents. Collect necessary documents such as pay stub, social security number, bank account information and proof of income.

3. Fill Out The Application. Fill out the bad credit loan application form with personal details, employment information and loan amount. Submit online or in person.

4. Review The Loan Agreement. Review the bad credit loan agreement carefully, read interest rates, fees, repayment terms and due date.

5. Get Loan Funds. Once approved, get the loan funds deposited into your bank account or prepaid card account, usually on the same business day.

Requirements

According to the U.S. government’s Consumer Financial Protection Bureau (CFPB), to qualify for a loan, most payday lenders only need:

1. Age. Applicants must be at least the age of majority, which is 18 in most states, some states require 19 or 21 years old.

2. Active Checking Account. A valid and active bank account for the deposit of loan funds and for the lender to withdraw repayments.

3. Proof Of Income. Borrowers need to show proof of regular income, such as pay stubs, to show they can repay the loan.

4. Valid ID. Borrowers must present valid ID, which is usually a social security number, to verify their identity.

How to Get the Money

1. Direct Deposit. The most common way is direct deposit into your bank account. Once your payday loan application is approved, the payday lender will deposit the loan funds into your active checking account, usually on the same business day.

2. Prepaid Debit Card. Some payday lenders offer the option to load the borrowed amount into a prepaid card account. This is convenient for those who don’t want to use their bank account.

3. Cash. In some cases, especially with in-person payday lenders, you can get the borrowed amount in cash. But this is less common than direct deposit or prepaid card.

4. Check. A few payday lenders may give you a check for the loan amount which you can then cash or deposit into your bank account.

Payday Loan Rates

Payday loan rates usually involve fees of $10 to $30 per $100 borrowed, depending on state laws and borrowing limits. A typical fee is $15 per $100 borrowed which translates to an annual percentage rate (APR) of around 400% for a 2 week loan. For example, if you borrow $300 you would need to pay back around $345 by next payday. These rates are much higher than other types of loans such as personal loans or secured personal loans.

Payday lending is allowed in 37 states, 11 jurisdictions including Connecticut, Maryland and New York have strict regulations or interest rate caps that limit or prohibit payday lending. Some states like Arkansas and North Carolina have repealed their payday lending laws and others like the District of Columbia have banned it altogether.

18 states and the District of Columbia have usury rate caps, often at 36% APR, to curb high-cost payday lending. States like Nebraska, Hawaii, Illinois and New Mexico have recently enacted such caps, which is a growing trend to regulate payday loan rates.

The highest payday loan rates are in states like Texas (662%), Missouri (652%) and Delaware (639%). On the other hand, states like Oregon (140%), Maine (228%) and Iowa (247%) have lower rates. Some states like Washington and Virginia have additional regulations to limit the number of payday loans or extend repayment terms to prevent debt traps.

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