Bad credit loans are given to those borrowers who have a bad credit history. A bad credit history includes arrears, default, county court judgments, bankruptcy, etc. Missing out at loan repayments or failing to repay a loan on time results in a poor credit score. Late payment adversely affects the borrower’s credit score. The situation becomes even worse if the borrower defaults in the loan repayment.
Sometimes, the debt problem becomes so severe that the borrower is forced to file for bankruptcy. Bankruptcy discharges the borrower from all his debt obligations so that he could make a fresh start. However, bankruptcy remains on the borrower’s credit score for many years and during all these years, the borrower cannot obtain a fresh loan. Even if he manages to get one, the rate of interest is very high.
Lenders are reluctant to grant bad credit loans because they consider borrowers with a bad credit history as high risk borrowers. According to them, a personal who has defaulted in the past is very likely to do it again. It is even more difficult to obtain an unsecured bad credit loan. Such a loan further increases the risk for the lender because it is not backed by any security. In this case, the lender has to make sure that the borrower has a regular income. It is easier to get a bad credit loan if the borrower offers collateral. Such a loan is known as a secured bad credit loan. In this case, the lender is not too much bothered about the borrower’s income and financial position.
With the saturation of the traditional loan market, lenders are now eyeing on the bad credit loan market. This market is huge and largely untapped. Moreover, people with a bad credit score are willing to pay high interest rates. This provides a good earning potential to lenders. However, before you apply for a bad credit loan, try to repair your credit score first. This will help you obtain a loan at a reasonable rate of interest.