Loans for Bad Credit Online: How to keep your credit healthy

You’ll find articles about loans for bad credit online. In particular, you’ll be warned about the real interest rates behind unsecured bad credit loans. They’re extremely high and they could put you in greater risk than you were before you made the loan. Truth is, high interest rates are not new. They have been around for ages. There might be some difference here and there, but the basic concept remains the same. If the lender is taking extreme risks to provide funds, the interest rates will be high as well.

Walter echoes this truth. Let’s listen to his story:

My story is as old as the history of credit itself. Or at least as old as Antonio’s story in “The Merchant of Venice.” There are several Shylocks demanding a pound of my flesh. I don’t have a sterling record when it comes to managing credit. Credit cards are my personal hellhole. I’m in the process of rehabilitating my credit scores but I’m still a long way off. I’ve heard of loans for bad credit online that promise quick approval of loan applications even for people with spotty credit records. Should I or should I not? That is the question.

– Walter

Yes, Walter, you can take out loans for bad credit online but you need to be aware of some issues surrounding unsecured online loans before you even think of applying for one.

High interest rates

Loans for people with bad credit are usually very difficult to obtain, especially those that do not require collateral. They are essentially unsecured loans that are based on good faith. There is always the chance that the lenders wouldn’t get their money back from people with bad credit. However some companies have done the math and figured out a way to hedge for this risk. One of the ways they did this is by pegging extremely high interest rates. In the law of averages, they figured they will come out on the winning side after subtracting bad loans from the good. The downside was these high interest rates resulted in fewer applications.

Online lenders to the rescue

Now, certain companies are offering products with interest rates kept to the minimum level possible on loans for bad credit online. They offer these to customers without the need for personal properties as collateral or any security deposits. You can get these loans quick, which is similar to how they are loaned out in the UK and Canada; the approval process is easy, and you can get the cash today (that is, on the day that you applied).

These loans provided by online lenders have advantages that a local brick and mortar lenders cannot offer, primarily in the speed with which applications are completed and processed. These companies have developed lower interest rates programs specifically tailored for individuals who have bad credit scores.

These companies have made the service available because they know that this sector was disadvantaged by the recent economic downturn. Loans for bad credit online might be the way for people to rebuild their credit rating and finally escape the vicious cycle of debt. Where to find these direct lenders is the least of your problems, because they’re everywhere on the Internet.

Keep your credit rating healthy

To avoid suffering the same fate as Walter, do your best to keep your credit rating healthy. Keep a close eye on it, and check it regularly because you might think you still have a good credit rating and can unsecured loans more easily when in fact you’ve fallen behind.

It is very difficult for a consumer to know in advance whether they have a high enough credit score to be accepted for credit with a particular lender. This is due to the complexity and structure of credit scoring, which differs from one lender to another. Lenders do not have to reveal their credit score, nor reveal the minimum credit score required for the applicant to be accepted. It is impossible for the consumer to know in advance if they will pass a lender’s credit scoring requirements.

Read FICO’s primer on credit scores to be aware of the factors involved in the calculation of your credit rating.

By Jenny Chang

Jenny Chang is a senior writer specializing in SaaS and B2B software solutions. Her decision to focus on these two industries was spurred by their explosive growth in the last decade, much of it she attributes to the emergence of disruptive technologies and the quick adoption by businesses that were quick to recognize their values to their organizations. She has covered all the major developments in SaaS and B2B software solutions, from the introduction of massive ERPs to small business platforms to help startups on their way to success.