Types of Credit Loans You Didn’t Know About
Updated · Jan 04, 2024
Around 16 percent of Americans, or more than 108 million people, have no credit, or a very low score. Millions more have poor credit. A bad credit score can make purchasing a car, renting an apartment, or buying a home more difficult. Because most traditional loans require a credit check, it can also make getting a loan tough or even impossible.
Loans can help you cover unexpected expenses, fund a home renovation project, and relocate. However, getting that loan can feel impossible if your credit score is too low. Luckily, traditional loans are not your only option. Keep reading as we explore other types of credit loans you didn’t know about.
Secured Personal Loans
Most lenders use credit checks to determine whether or not a customer is eligible for a loan. This means that if your credit score is low, you may not qualify for a loan. Secured personal loans are one type of loan for bad credit.
Instead of using an individual’s credit score to determine whether they can repay a loan, a secured personal loan uses collateral. This collateral is often a property, home, or vehicle. Using these large items as collateral gives the banks greater security in their lending. If you fail to pay back your loan, they will cease the collateral. This may also allow banks to lend to those with a lower credit score.
Secured personal loans may go by different names depending on the type of collateral. For instance, a personal loan that uses a vehicle’s title as collateral may be called a title loan.
Not all bad credit loans are traditional loans that can be obtained from a bank. Peer-to-peer lending is one such option.
With peer-to-peer lending, you borrow money directly from an individual rather than a bank. A financial tech company facilitates these loans. Instead of filling out an application or speaking with a loan officer over the phone, you’ll connect directly with lenders through a peer-to-peer lending website.
Point-of-sale or POS loans have increased in popularity in recent years. As the name suggests, point-of-sale loans are available at checkout at many popular online retailers. Some examples of point-of-sale loan providers are Affirm, Afterpay, and Klarna.
With a point-of-sale loan, the loan amount totals the amount of the purchase. Consumers apply for these loans through a link at checkout on online retailers. These loans often have a set repayment schedule. Borrowers agree to pay back a set amount each month. Point-of-sale loans often do not require a credit check, making them a good option for personal loans for bad credit. However, if you fail to pay back your loan or make payments late, this could impact your credit score.
Pay Day Loan
Bad credit loans come in many different sizes. A Pay Day loan might be a good choice if you’re looking for a loan to help you cover smaller short-term expenses while you wait to get paid.
A Pay Day loan is a loan for a small amount, often around $500. Usually, the loan terms state that the full loan amount will be repaid on that individual’s payday. Sometimes, lenders will require borrowers to write a post-dated check for the loan amount to be cashed after their payday.
Choosing the Best Bad Credit Loans
Loans can help you cover a variety of expenses and purchases. However, getting a loan can be challenging if your credit score is lacking. From title to payday loans, bad credit loans offer an alternative to traditional lending for those with poor credit scores.