Posts tagged: unsecured loans poor credit

Unsecured Loans for Poor Credit

Every door in the world of borrowing and finance doesn’t close to you just because you have bad credit. In fact, I’d guess that a high percentage of loans – maybe even 30% to 40% of loans across the board – are given to people that most of the credit world would call ‘credit challenged.’ You have all kinds of loans specifically geared toward bad credit, including home loans car loans, credit cards…you even have unsecured loans for bad credit.

Now, that’s not to say it’s easy to get unsecured loans no credit check. It’s actually going to be pretty tough. Put yourself in the shoes of the lender, and think about what kind of person you actually want to lend money to.

As a banker, you’re looking for somebody to who’s highly likely to pay the money back. Now, given the fact that you don’t know the people who are walking into your lending institution on a daily basis personally, all you can do is work from the most common source of information on a person’s track record – their credit score. But in the case of unsecured loans with poor credit, you don’t even really get to use that. Folks looking for these kinds of loans look bad on paper.

The whole problem is that the big banks employ huge teams of statisticians who build massive actuarial tables, and the job of those tables is to say “given this person’s credit score, how likely are they to repay a (for example) $1500 loan?”

For a bad credit borrower like you, those actuarial tables say “he’s not very likely to make his payments on time, if at all.”

So how is the banker going to lend you the money? He has to do something to make sure his overall lending practices stay profitable, so the only way he can give you an unsecured loan for poor credit is to change what those tables say, and he does that through high interest rates and fees.

See, what they do is look at the repayment patterns of all borrowers of approximately your credit standing (aka not so great) and they look at what percentage of the time they bail out on the debt. Once they have a pretty good idea of the default rate, they raise the interest to the point that the interest paid by those who do make their payments more than covers the lost money on those people who flake. Make sense?

So, if you do happen to qualify for bad credit personal signature loans, you’re going to be offsetting the costs of other people’s unwillingness to pay their debts. It’s not ideal, but I guess you do what you have to.