Bad Credit - Unsecured

Bad Credit Unsecured Loan
Unsecured Installment Loans for Bad Credit

One kind of loan that people with bad credit might be able to get is an unsecured installment loan. An installment loan is a loan is a loan that people agree to pay in a series of installments, usually a set amount of money each month. Most people are familiar with installment loans such as car loans and mortgages.

The difference between a secured loan such as a mortgage or a car loan and an unsecured loan is that collateral is required for a secured loan. In a secured loan the lender seizes the collateral if the loan is not paid. In an unsecured loan no collateral is involved so the loan is usually based on the borrower’s reputation.

Most installment lenders give borrowers a book of payment coupons that they send in with each payment. Today most installment lenders accept electronic payments and credit card payments.

Electronic payment for installment loans

One requirement that a lender might require on an installment loan to a person with bad credit is automatic payment or automatic debit. In this process the lender automatically takes the payment directly from the borrower’s bank account each month. This system guarantees repayment but it can cause bank accounts to become overdrawn.

The disadvantage to this process is obvious; the lender can take the money from the account at anytime. If the borrower doesn’t realize that the money hasn’t been taken out of the account they might write a check or make a debit card payment for money that isn’t in the account. Many banks charge a high overdraft fee when such circumstances occur.

Advantages and disadvantages of installment loans

One big advantage of an installment loan is that the entire amount of the loan is not due at once. Instead the borrower only has to make payments for a set amount each month. Another big advantage to installment loans is that the payment can be small and manageable. Since the borrower knows when the payment is going out they can budget for that payment.

A disadvantage to installment loans is that part of a person’s income is tied up each month when they take one out. This can reduce the amount of income available for other purposes and make paying other bills more difficult.

Where to find installment loans for people with bad credit

The best place for people with bad credit to look for an unsecured installment loan is online. Many online lenders have installment loan plans designed with people with bad credit in mind. These lenders may even be able to tailor an installment loan for a specific borrower.

These lenders will generally charge people with bad credit higher interest rates for unsecured installment loans. They have to charge higher interest rates because they are taking a risk by making unsecured loans to people with bad credit. By shopping around online, a person with bad credit should be able to get a better interest rate and better terms on such loans.