Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Aug 17, 2012

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Bad credit personal loans are secured financing for borrowers with poor credit scores and flawed credit histories.

Those with bad credit should be prepared to put up collateral if they hope to obtain financing. Collateral minimizes lenders’ risks in the lending process and encourages them to approve a low credit applicant’s request for money. Borrowers can always find and compare bad credit personal loan quotes before seeking out actual lenders.

Collateral can be very diverse for the purposes of bad credit personal lending, however whatever is used must be valuable enough to cover the amount of money an applicant wishes to borrow. Some examples of collateral are real estate, vehicles, paychecks, and other valuable assets.

Due to the intrinsic nature of bad credit history and what that means, lenders must take measures to protect themselves. For lenders, lending money to borrowers with bad credit scores and poor credit histories is a risky investment since borrowers with these negative attributes often fail to repay loans in a timely fashion—if at all.

To mitigate this risk, lenders impose high interest rates. Therefore, bad credit personal loan borrowers must be prepared to make higher payments than they would if they had good credit histories.

Lenders will partially calculate these interest rates once they have examined and analyzed the credit scores and credit histories of applicant borrowers.

Borrowers should take some small comfort in the fact that not all credit scores—even bad ones—are equal, and there are differences between “bad” credit scores and “horrible” credit scores. These differences may not be enough to prevent high interest rates, but how high of an interest rate a borrower receives is contingent upon each individual’s personal situation.

Prospective bad credit personal loan borrowers must remain cautious since it is all too common for predatory lenders to take advantage of people with bad credit scores who may be desperately seeking loans.

Borrowers should avoid bad credit personal loans if they are uncomfortable paying high interest rates or feel uneasy about offering collateral that may be seized in the event of defaults.

For borrowers without suitable collateral and who are not interested in paying high interest rates, there are alternatives available. Borrowers can speak to friends and family in order to secure a tax-friendly family personal loan. If borrowers still have access to credit cards then they can opt to rely on those as well. Finally, liquidating property and assets can also provide funds for borrowers who feel that bad credit personal financing is not the right choice for them.