A loan meant for borrowers with a poor credit score is known as a bad credit loan. These are typically fixed-rate loans that are not usually backed by collateral. Instead, lenders consider your debt-to-income ratio, credit report, and credit score before granting you the loan. Merely having a FICO bad credit score, that is, between 300 to 629, does not necessarily equate to disqualification from getting a personal loan. However, it does reduce your chances of getting approval from the bank.

Typically there are five kinds of bad credit loans. These are granted for a term of 1-5 years and are to be repaid as monthly installments. You can utilize these funds as and how you like them.

Read on to know the types of bad credit loans.

Subprime loans
Such loans are typically a consideration with auto loans. In case you do not qualify for a credit union or bank loan, the auto dealers will recommend subprime loans. You must opt for this loan only if there is no other option available, and you need a car. Unfortunately, these loans attract a high interest rate. So, the cost that you will have to incur will be pretty high. Typically, interest rates are 20% or more, with a repayment term of up to seven years. Overall, subprime loans are the key reason why most people with bad credit end up paying more for the car than it’s worth.

Bank agreements
At times, banks may authenticate you for a minimal overdraft agreement or a short-term loan. However, it majorly depends on your ability to keep the account open and your banking history. To know your eligibility, you can contact your bank and inquire about the same. This is the best solution for someone with a great banking history seeking only a small amount. However, since these are not official policies, they are not the most reliable form of borrowing.

Cash advances
These are provided to you by your credit card issuer and are similar to short-term loans. Herein, you receive the amount in cash that is borrowed from your available credit card balance. This is indeed one of the fastest ways to get money. So, for someone with an urgent need, this can be a good pick. However, people with unsecured credit cards should be careful as the cash advances might attract high interest rates.

Payday loans
Payday loans are called predatory loans for a reason. In these, you are offered a loan against your next paycheck, and the interest chargeable on it can be as high as 300%. Further, in payday loans, the lender will demand access to your bank account, so they can withdraw the funds anytime you receive your next paycheck. If you do not receive your remuneration and, in turn, fail to pay this loan, things can get severely ugly.

Secured and unsecured personal loans
In secured loans, you have to present collateral as a security for the loan. Compared to unsecured loans, secured loans have more favorable interest rates and greater loan limits. Also, when you have bad credit, your likelihood of qualifying for a secured loan over an unsecured loan is more. If you fail to pay this loan, you may end up losing your collateral.

On the other hand, unsecured loans need no collateral, and the rate is decided according to your creditworthiness. So, naturally, for someone with bad credit, these can be hard to qualify for. In this loan, the loan limit is usually low, and the interest rate is high.

These are the types of loans you can get with a bad credit score. However, ensure that you take these loans only if you need them direly and are out of options. Failure to repay these loans can put you in severe debt and render you bankrupt.