Lots of banks provide unsecured personal loans. Wells Fargo does. Bank of America does. Chase does. The list goes on and on and on. If you have awesome credit you can walk into almost any bank and take one out. Some banks call these loans signature loans but the name doesn’t matter. The point is that you can easily take out an unsecured loan if you have a job and great credit.

The problem, however, lies in the fact that there are millions of people in our country that don’t have great credit. Many people have bad credit and for these people, the process of borrowing money is a lot more complicated. If you have bad credit, banks are going to turn you down because they believe that you have a history of not paying your bills on time.

My Story With Bad Credit

When I first started college, I didn’t understand credit. I also didn’t have parents who cared about helping me to learn. They actually don’t know a dang thing about credit – about money for that matter. I took the first two credit card offers I ever got and open up two credit accounts. I proceeded to ruin my credit by making my payments late (way late) and going over my credit limits. I lost my job and had no way to make money so I decided (stupidly) to let those cards go. The banks shut them down and I had a terrible credit history.

Two years later I had become really responsible with money. I had a good job and paid my bills on time. I had learned about how credit works and had realized how many mistakes I had made. In those two years I hadn’t paid a single bill late. I decided that I better check my credit report and discovered, to my horror, that my score was around 475. I’m pretty sure you can’t buy a snickers bar on credit with a 475 credit score.

Can you see the conundrum? I was a truly responsible person with a terrible credit score. Where do people like that get a loan when they need it?

The short answer is that you simply don’t have any awesome options. It didn’t matter that I had two years of a clean credit history – banks wouldn’t even consider giving me unsecured personal loans with bad credit.

The Options I Had

At that point, I discovered that really I only had two options:

1. Find a cosigner (I honestly didn’t have anyone to help me out with that).
2. Use cash advance loans.

Neither of these options is that great. Cash advance loans have a ton of interest and I didn’t have a person in the world who could help me as a cosigner.

I took out a cash advance loan or two but realized that I was only making my situation worse. I decided to create a real savings account with a few thousand dollars in it. That account became untouchable – almost like it wasn’t my own money. I never again needed this type of loan.

However, that doesn’t mean that I didn’t use these loans before that, when I needed to. If you find yourself in that situation, just be careful. Investigate the lenders you’re checking out. Check more than one and compare fees and interest rates.

There are a lot of different loans out there and each one has its advantages and disadvantages. Home loans, for example, carry great interest rates, as long as you have a high FICO score. The downside to these loans is the 15, 30, or 40 year term. That’s a long time to make payments. Let’s get to the point – when you’re evaluating a loan you have to look at its strengths and weaknesses.

Introduction To Unsecured Personal Loans

When you’re evaluating any unsecured loan, the first thing you’re going to want to look at is its interest rate. The best unsecured personal loan that I know of is going to be a signature loan that you get from a bank. If you have a good FICO score and decent credit history you can expect to pay around 11% for a loan of this type.

An 11% loan isn’t considered to be cheap, in fact it’s extremely expensive and that’s what you’re going to have to deal with if you’re going to take out a loan that isn’t secured. Banks are forced to charge additional interest because they need to assume that some people will default. If you make your payments on time you will in effect be paying for other people who aren’t. That’s the world of unsecured loans and there really isn’t anything that can be done about it other than getting yourself into a position where you don’t have to take them out.

When you take out loans of this type, you don’t offer collateral. You sign on the line and take out a loan. Banks rely on your credit history to determine whether you’re a healthy risk. For that reason it will be extremely difficult to take out one of these loans if you don’t have a solid credit history.

Be Careful With Personal Loans Online

There is a huge market for those who free up money by taking out a personal loan online. However, this can often put you in a worse financial position. You can expect to pay at least 15% interest if you use an online lender. I have credit cards with lower interest rates.

There are also a bunch of payday lenders who advertise their services as personal loans. With payday loans you can expect to pay upwards of 500% interest. This will obviously crush your ability to keep your finances in check. If you’re thinking about starting down that road, take my advice: don’t do it. Stop borrowing money and get your finances in order.

Those of you who struggle with your credit histories won’t be able to take out signature loans from a bank and will be forced to use payday loans. Why? Because they are the only institutions who are willing to take a risk on people who have dodgy credit histories. They can afford to do this because of the insanely high interest rates that they charge. They plan on having a lot of people who don’t make their payments and that makes up for all of the people who default on their loans.

My Honest Advice About These Loans

Change your habits and free yourself from this type of debt. You don’t want to pay these high interest rates. 11% is already too much to spend on a loan and many of you will spend even more because of your credit. If you start down this path, you’re only going to make your situation worse.

There are actually quite a few different types of personal loans for bad credit. Signature loans and payday loans would both fall under this category. If your credit is fair to poor, it may be difficult to secure a signature loan. With this type of loan, the bank doesn’t require collateral which is a higher risk for them. If you don’t need a huge loan, a payday loan may be a more viable option. With a payday loan, the lender won’t do a credit check. They will instead verify that you have a job and a checking account.

Personal Loans For Bad Credit

Bad credit personal loans are going to carry a higher interest rate than loans for people that have good credit. For some people, it might be difficult to get a loan of this type. The bank obviously isn’t going to loan to a person that will make them take on too much risk. While personal loans for people with bad credit are a solid income stream, most banks are going to limit the amounts they will loan out to cover their risk.

Unsecured Personal Loans

There are a few different types of unsecured personal loans that are available. Signature and payday loans would fall under this category. Both are loans that require no collateral. Since the bank takes on more risk when they give unsecured personal loans, this loan type carries a higher interest rate than secured loans.

There are online and off-line institutions that provide these types of loans. For signature loans, you can visit your local bank or a large online lender. For the payday type, you can visit a payday loan store in your area. Caution: Payday loans are often quite expensive.

High Risk Personal Loans

High risk personal loans are called payday loans by most people. This type of loan is extremely risky for the lender because the credit of the borrower isn’t checked. This means of course that people with poor credit gravitate to this type of loan. To hedge their risk, the lender will often charge a near-obscene amount of interest. This helps them to bank a lot of cash from this group of loans, which they use to pay for the loans that default.

If you’re trying to find personal loans with bad credit, this may be the only type that’s available to you.

Secured Personal Loans

Secured personal loans are a great option for individuals that have assets that can be used as collateral. Common assets that people use as collateral for secured personal loans are homes, land, stocks and bonds, or insurance policies.

Since the bank is taking less risk when they provide secured personal loans, they will often provide the funds at a lower interest rate. For individuals with great credit, this type of loan will usually provide the best interest rates of any type of loan out there.

Guaranteed Personal Loans

When people talk about guaranteed personal loans, they are usually referring to payday type loans. This type of loan is available to anyone, regardless of credit history. The lender will usually verify that the borrower has a job and a checking account. The funds are usually direct deposited to the borrowers checking account and the payments are then withdrawn from the borrower’s checking account. These loans often have very high interest.

Poor Credit Personal Loans

Poor credit personal loans are pretty hard to come by. Payday loans and collateral based secured loans are about that only options if you have poor credit. If your credit is poor, you can expect to pay more interest than everyone else. Work on your credit to secure better rates.

Outside The Realm Of Possibility Loans

People often ask me about ridiculous loans they wish that can get. Some people have crap credit and aren’t willing to pay high interest. I have an idea, why don’t we start offering free bad credit personal loans. We’ll take everyone with terrible credit and give them no interest loans. Come on people, banks have to make money. That’s kind of the point. Oh, maybe we could also offer no credit check personal loans with no interest. Ha!