No one plans to end up with a bad credit score. If you are one of them, bad credit loans can be lifesavers if you require cash for emergency expenses. However, such loans come with a high-interest rate, strict repayment terms, and high penalties for default payments. The average interest on bad credit loans is around 9.34% and an APR up to 36%. They are offered for periods ranging from two to five years. It is important, therefore, to understand all about bad credit loans before getting one.

Six types of bad credit loans

• Personal loans: Secured and unsecured personal loans are loans given with or without collateral and usually have higher loan limits and rates.
• Payday loans: Ideal for those who need small loans from $500 to $2000. It has high-interest rates that can go up to 400%. You have to repay the loan with your next paycheck. The interest alone can be many times over the amount borrowed.
• Cash advance: The available balance in your credit card can be borrowed as a cash advance at higher rates.
• Bank agreements: A typical overdraft agreement with your bank for a short-term loan
• Home equity loans for poor credit: An advance from your home loan equity that is disbursed upfront and has to be repaid in installments.
• Home Equity Lines of credit: Similar to home equity loans, it allows you to borrow limited amounts with variable interest rates.

Points to note before buying a bad credit loan
There are many sources of getting bad credit loans. You have to be diligent, meticulous, and thorough in your research. Compare multiple offerings from different lenders before getting such loans. Check for penalties in case of a delay or default in repayment. If you cannot decide, talk to a certified and authentic credit counselor who can recommend the right credit unions or companies.

Here are some points to consider before applying for a bad credit loan.

• Know your credit score
• Be prepared for a credit check by lenders
• Check if you prequalify for loans before applying
• Compare multiple personal loan plans
• Look for secured loans to avoid high interest and debt cycles
• Understand your financial situation and ensure that you repay the loan on time
• Add a friend or a family member with a good credit score as a co-signor
• Be prepared with all required financial documents

Checklist to choose the right lender

• Understand the fine print and know about repayment period, frequency, interest rates, APR, penalty, and late fees. Never decide on your provider unless you talk to a customer service agent over the phone to know about hidden charges.
• Get quotes from multiple lenders – take a printout, read carefully and understand it thoroughly.
• Check your eligibility based on credit scores, income, and debt to income ratios for each lender.
• Choose the right lender. Bad credit loans are offered by credit unions, one or a group of individuals, online lenders, and banks.

Points of caution before choosing a bad credit loan

In an urgent need of cash, one of the most common mistakes that you could make is a lack of proper research and verification of online lenders’ authenticity. There have been many instances where borrowers have fallen prey to scams, and unscrupulous money lenders, losing money and collateral. Verify the following before making a decision.

• Check for registration in your state and verify the physical address of their offices.
• Check if they have a secure website as you will be sharing personal and financial information with them.
• If the company insists on prepayment of additional charges instead of deducting from the loan amount, it indicates unlawful practices.
• Research for reviews online and ensure that you are dealing with an authentic lender.