What are Bad Credit Loans?
"Bad credit loans" is a catch-all term for personal loans designed for borrowers with FICO scores below 630. Because the lender takes on more risk, these loans typically come with higher interest rates (APRs) than standard bank loans.
The Trade-off: Speed vs. Cost
The primary benefit of these loans is accessibility and speed. Many online lenders specialize in looking beyond just your credit score, considering your income and employment stability. However, the cost of borrowing is higher.
Key Risks to Watch For
- High APRs: Rates can range from 15% to over 35%. Always check the APR, not just the monthly payment.
- Origination Fees: Some lenders charge a fee (1-8%) deducted from the loan amount upfront.
- Prepayment Penalties: Avoid loans that charge you extra for paying them off early.
Alternatives to Consider
- Secured Credit Cards: Requires a deposit but builds credit safely.
- Credit Unions: Often have caps on interest rates and are more willing to work with members.
- Co-signers: Asking a family member with good credit to co-sign can drastically lower your rate.
Best Practices
- Borrow only what you need.
- Have a repayment plan before you sign.
- Check for accreditation (e.g., OLA members) to ensure you are dealing with a reputable lender.