Monday, August 20, 2012, AM | 12 Comments
There was a time when banks gave the traditional installment loans to everyone who wanted one. But after various developments in the banking system it has become quite difficult and time consuming to borrow any amount from the banks as installment loans. The procedure for getting credit involves two major factors:
Selecting the apt kind of installment loan from different alternatives-for a house, apartment, for the some valuable goods such as a car, a fridge, a TV set and so on.
Getting the agreement of the bank for giving the loan.
These days it’s really very difficult to get approved for a traditional bank loan without being asked to prove your capability of repayment. To measure the individual capability of repayment banks consider credit history, and usually it’s impossible for a person with bad credit history to get approved.
A bad credit score on the credit report means that you haven’t paid off your default debt due to poor financial conditions. A bad credit score is added on your report when you make late payments, completely miss payments, obtain many debt solutions, bankruptcy, insolvency or when you get penalized with any other debt penalties.
Some alternatives to traditional loans for people with bad credit history
Similar to people with good credit history, a person with bad credit has the option of two types of loan, known as secured and unsecured loans.
These loans involve collateral which acts as security against the loan amount. The collateral provided is the borrower’s asset which lenders can possess if borrower fails to make a repayment.
The loan amount depends on the value of the asset against which the loan is taken, the value of asset must be greater than or equal to the loan amount.
Usually, the borrower’s house is used as collateral, but in situations when the loan amount is relatively small other valuable assets can be accepted, such as a car. As the loan amount is secured against collateral, it involves less risk for the lenders.
Example: mortgage loans and personal loans.
These types of loans don’t involve collateral as security against the loan amount. These are short term loans for a small loan amount as they involve high risk to the lender.
Anyone with bad or good credit can apply for these loans. The maturity period for these loans is short, usually 2 weeks or 1 month depends on your payday. Some of the features of these unsecured loans include:
- Instant approval and processing of funds
- No need for collateral
- The loan amount offered is usually relatively small
Examples: payday loans and car loans
Author Bio: The guest post was contributed by Alicia, financial guest blogger from Manchester, UK. Find out more about her finance related blogs @financeport.
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