A Primer on Bad Credit Loans

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:: A Primer on Bad Credit Loans


Once upon a time, the term "bad credit loan" was thought to be a dead end situation. Today, with Americans carrying more debt than ever before, bad credit is often a way of life for millions of Americans. In fact, recent studies have estimated that 20% of Americans would fall under the category of "bad credit borrowers." While this is obviously not an ideal situation for borrowers, it has become a fact of life for many. These borrowers must turn to bad credit loans for home purchases, refinancing, home equity lines of credit.



The term bad credit loan is actually a generic term for a sub prime or a hard money loan. Bad Credit Lenders are going to have a higher APR that a traditional or conforming bank loan, owing to the greater risk that a borrower poses. Bad Credit Loan Lenders always have a minimum loan amount, some as low as 5K and others as much as 100K. Bad credit loan terms vary as well, anywhere from 2-20 years.

Bad credit loans are typically secured with existing equity in real estate, although this may not always be required. Often times, 25% equity is required for a lender to make a bad credit loan. Unsecured bad credit loans do not require equity or security against the loan.

There are many sources for bad credit loans. The first example is for small loan amounts and is known as a check advance -- often referred to as a payday loan. In this case, the borrower issues a check against which the lender offers a bad credit loan. For larger bad credit loans, a more traditional loan process will occur -- with disclosure docs etc. These loans may take up to three weeks to process, although a private loan can take place as quickly as four days.

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