Having a Bad FICO credit score is always like a big headache. It spoils the chances of getting frequent loans as you can’t gain the trust of lenders with a bad credit score. In very difficult situations, this score will hurt us a lot. But always there’s a solution on the cards. At difficult times, one with a bad credit can approach the lender for an unsecured personal loan or a no credit check loan.
What’s an unsecured loan?
An Unsecured loan is a practice of lending money through contracts and paperwork explaining the terms, conditions and the deadline for installments. It may state that if you fail to pay the given amount within the given date, the lender can pursue collection through a collection agency or by legal action. Often, these loans will have a high-interest percentage which is because of your low credit score.
How to get the approval of these loans?
An Unsecured loan is a loan offered to an individual by the banks and NBFC’s without collateral. Banks do a complete research of your credit history and FICO credit score before lending the money. It is very difficult to get an approval of these loans for loaners with a bad credit but it is possible when it is charged with a higher rate of interest.
Sometimes banks reject bad credit personal loans due to your poor creditworthiness. There are several NBFC’s (Non-banking financial companies) look at your creditworthiness and might approve your loan. They are more flexible in credit scores compared to banks. Most of these loans will be unsecured since you don’t produce any collateral.
In case of emergency situations, it is advisable to get loans from a local bank where you have an existing loan. You can request the manager to give an unsecured loan with a low-interest rate by explaining your situations.
Is it advisable to take an unsecured loan with bad credit?
In some cases where you’re in need of money like for medical purposes, and you have a very bad credit background, it is very much advisable to avail an unsecured loan. In other scenarios, availing an unsecured loan with a bad credit is not advisable. These loans are often very risky for both the parties. Because of your poor credit score, the lender will incur a higher degree of risk, since it will be a big task to recoup the money if the loaner fails to make the payment. To recoup the loss, the lender will charge very high-interest rates. You will be made to pay twice the amount you borrow from the lender.
Unsecured loans are always dangerous as it gives the lender a power to file a lawsuit against you for not paying the loan properly. Often coming out of a lawsuit with all charges clear is a tedious job and often leads to a more financial loss. You need to pay your lawyer, penalty amount and a separate amount for court proceedings if you need to be cleared of all charges. It is safe to avoid these and avail a secured loan.
Weigh all your options and go for a no credit check loans 5000 only when you are in need of money in tough times. Otherwise, it is advisable to stay out of these types of loans and avail a properly secured loan with collateral.