Unsecured loans for bad credit may be required by consumers as well as business entities. Generally, unsecured bad credit loans are not easy to come by. Even if the borrower manages to find a lender, who is willing to provide loans without any collateral despite the former having poor credit, the trade-off in the form of exorbitant interest rates is inevitable.
Unsecured Business Loans for Bad Credit
Unsecured business loans may be required by small as well as large businesses for meeting both short term and long term capital requirements. Banks and credit unions, that extend credit to businesses without any collateral, do so provided the borrower is deemed credit-worthy. In case the borrower is not credit-worthy, the disburser expects the former to have a guarantor. A guarantor undertakes the responsibility of paying-off the loan in case the primary borrower defaults. For instance, the Small Business Administration (SBA) may guarantee as much as 80 percent of the loan principal for small businesses. However, this guarantee is provided only to enterprises that lack sufficient operating history and the necessary collateral and not to bad credit borrowers. One can safely assume that a large business may have significant assets to pledge. Hence, in the absence of a good credit rating, the business should consider opting for secured loans. Considering that good credit entitles a business to avail between $10,000 and $200,000 in unsecured loans, one can very well imagine the futility of trying to obtain unsecured business loans for bad credit.
Tip: Merchant cash advances are a viable alternative to unsecured business loans for bad credit. Cash advances are different from loans since the monthly repayment is contingent on the gross monthly sales figure for the business. Credit rating and collateral are not important for obtaining merchant cash advances. On an average, a business can avail as much as $500,000, in merchant cash advances provided it processes between $1,500 and $5,000 in monthly credit card sales. The advance is repaid over a period of 6 to 9 months. However, the rate of interest on merchant cash advances is significantly higher than that on unsecured commercial loans.
Unsecured Personal Loans for Bad Credit
Unsecured personal loans are called signature loans and these are meant for borrowers with good credit scores. Unsecured loans for people with bad credit history may be extended by some lenders provided the borrower is able to provide proof of income and employment, necessary personal information, proof of address and details regarding expected expenses. Having a cosigner may help the borrower avail an unsecured loan at a reasonable rate of interest. However, it’s not easy to find someone to cosign for the loan since the cosigner’s credit score will get affected if the borrower fails to repay the borrowed sum. Moreover, the cosigner will also find it difficult to borrow additional loans due to increased debt to income ratio. Typically, unsecured loans for people with bad credit rating, requires the borrower to pay a very high rate of interest that ranges between 8 and 20 percent.
Tip: Given, the difficulty involved in procuring unsecured loans for bad credit, consumers can try opting for payday alternative loans assuming that the borrower needs cash for meeting short term expenses till the next paycheck arrives. These loans are better than payday loans since the borrower is generally charged an APR that varies between 17 and 22 percent as against payday loans that have been known to charge an APR as much as 400 percent. As a sharp contrast to payday loans, payday alternative loans do not allow rollovers thus, ensuring that the borrower does not get trapped in a never ending debt cycle. Low application fee also provides a modicum of comfort to the borrowers.
Although, unsecured loans for bad credit are not easily accessible, the article has explored other viable alternatives so that cash strapped borrowers do not feel helpless on account of the dearth of unsecured loans for poor credit.