Do you have a bad credit rating and need guidance on how to apply for a loan? If so, then you have come to the right place. Having a bad credit rating is not as uncommon as you’d think. With so many factors responsible for your credit score, it can be easy to end up with a less-than-perfect credit rating. On the plus side, a bad credit rating is not all doom and gloom. If you need financial help, then you can always get some by securing a bad credit loan. There are plenty of options available for those in need of a bad credit loan in Australia. These include payday loans, secured bad credit loans, bad credit loans with an external guarantee, and unsecured bad credit loans. In this particular article, we are going to talk about unsecured bad credit loans.
What Are Unsecured Bad Credit Loans?
An unsecured bad credit loan is similar to a secured bad credit loan with one important difference: The absence of collateral. A secured bad credit loan requires you to provide collateral in the form of your car or home equity in exchange for the funds. An unsecured loan does not require you to provide this type of security. Consequently, these loans pose a much greater risk to the lender and they may charge you a higher interest rate. Unsecured bad credit loans have a series of benefits as well. These include:
- Defaulting on payment will not result in consequences such as losing your home or car
- Flexible repayment terms
- The lender does not limit you regarding the purpose of the funds
What Are The Different Types of Unsecured Loans With Bad Credit?
There are several types of unsecured bad credit loans available as well. These include payday loans, an unsecured line of credit, and a debt consolidation loan.
1. Payday Loans
Payday loans are short-term, unsecured loans. They have flexible terms and conditions. You borrow a loan amount of $2,000 to $5,000, depending on your lender. These loans charge an establishment fee as well as a monthly fee. The repayment period can last between 2 weeks and 6 months (or more).
2. Line of Credit
A line of credit is a useful option as well. They are similar to a regular, revolving line of credit. You are provided with a maximum credit amount. You can withdraw money from this line of credit when required and repay when you can. This loan option will only require you to pay for the amount of credit you use.
3. Debt Consolidation Loan
A debt consolidation loan is a “type of loan that is used to pay off your current debts”. Finding a debt consolidation loan with a bad credit score can be difficult. You need to find a lender that is willing to charge you a low interest rate. This is important since you are using this loan to pay off your current debt (which will have an interest charge as well). The goal here is to find a lender that offers loan terms and an interest rate that you can manage.
When Should You Apply for an Unsecured Loan With Bad Credit?
An unsecured loan with bad credit can be extremely useful. However, you need to be careful about applying for this type of loan. You also need to be careful about how you intend to use the loan amount. For instance, you should avoid using an unsecured loan for investments such as purchasing a car. These loans are most suitable for use during an emergency where you need access to fast cash. Here’s why:
- Given the high interest charged, it is better to pay off on an unsecured loan as quickly as you can. Prolonging payment can affect the cost of borrowing such loans. For instance, if the interest rate increases over time, then you will have to pay more than you initially signed up for.
- Late payments on these loans will hurt your credit score (Naturally, this is not what you want).
Choosing a Lender for Unsecured Loans
Given the costs, you must choose a suitable lender when applying for bad credit loans in Australia. Your final decision should depend upon the following:
The Interest Rate
The interest rate is a primary consideration when choosing a suitable lender. If you are looking to borrow a loan amount that is less than $2,000, then the lender will not charge you interest. Watch out for lenders that end up charging you an interest anyway.
The Additional Costs
As mentioned earlier, most unsecured bad credit loans involve an establishment fee and a monthly fee. These fees are charged as a percentage of the loan amount. Make sure you can manage these costs along with the loan amount.
The Reputation of the Lender
You must also choose a reliable lender with a good reputation in the market. This is important because there are plenty of online scams that will offer you a personal loan with bad credit. Watch out for lenders that ask for an upfront fee before providing you with the loan. They are most likely to be running a scam and will disappear with your money.
There are plenty of lenders in Australia that can offer you a bad credit personal loan. These include:
- Safe Financial
- Credit 24
- Fair Go Finance
- Sunshine Loans
Applying for an unsecured bad credit loan can help you gain access to fast cash in an emergency. These loans can be used for a variety of purposes, but we suggest you do not use them for major investments such as making a down payment on a car.
Finding a lender that can provide you with manageable loan terms is very important. If you are looking to apply for a bad credit loan in Australia, make sure you check the interest rates, the additional fees, and the reputation of the lender. If things get too confusing for you and you are unable to find a lender, feel free to get in touch with us at Bad Credit Personal Loans.