What do we mean by bad credit? 

It can be somewhat confusing as this term is often used to describe two different things. When looking at borrowing money, bad credit can sometimes refer to the credit itself. As explained in this post, it is credit that further enslaves you to your job or your source of income. In short, you’re borrowing money that doesn’t serve to improve your financial status.

Image via pixabay (CC0 License)

We’re not talking about that today. Instead, we’re looking at the other definition of bad credit in relation to your credit rating. Effectively, having a bad credit rating means the credit agencies don’t deem you worthy of borrowing money. They don’t trust you because you’ve shown tendencies that prove to them you are bad at managing your finances. Perhaps you have taken on too much debt, or maybe you have a track record of missing payments. Regardless, you’ve got bad credit, which can affect your ability to do many things – such as getting a loan. 

This brings us to the topic of discussion; can you get even small loans for bad credit? The short answer is yes. However, there are certain things you need to keep in mind.

Different caveats

You can certainly get some loans when you have a bad credit score. Generally, bigger loans are harder to come by. For example, it is rare that you’ll get a mortgage with a bad credit score because so much money is at stake. However, as you can see on the New Roads Auto Loans website, it is entirely possible to get a car loan with bad credit. Most of the time, it’s up to the lender to decide if they want to take a risk with you or not. 

But, to cover their tracks, they often have a few caveats: 

High interest rates

Many lenders will protect themselves by charging you higher interest rates. So, they basically make more money from the loan and get more money back from you every month. Unfortunately, if you’re not financially stable, getting a high-interest loan could make your situation even worse, so be careful!

Secured loans

Secondly, some lenders will offer secured loans to people with bad credit, rather than unsecured loans. A secured loan is one that’s backed with collateral. In the example of a car loan, the lender will take ownership of your car until the loan is repaid. So, if you stop making payments or cause them too much trouble, they’ll simply take back the car. Other lenders might take some of your existing assets as collateral – such as your house or other valuables. The idea is that this is an incentive for you to repay them, and they also cannot lose money because they’ll just take the collateral if you mess them about. 

So, yes, you can get a loan with bad credit – but should you? If you have no other choice, then be aware you’ll face high interest rates and possibly secured loans. Instead, a better approach is to work on improving your credit score. Get it to a good state, allowing you to enjoy lower interest rates and more affordable loans.