For most bad credit borrowers, getting a financial injection can be the difference between ongoing financial problems and a return to strong credit status. However, there is a certain challenge in getting approved when looking for a bad credit unsecured loan. Lenders are simply more cautious about granting them.

But is it worth applying for this type of loan when the chances of getting unsecured approval are low and the restrictions that come with these deals are sometimes severe? There are certainly pros and cons to the deal, although for some applicants, the pros outweigh the cons.

Here are some points to consider when applying for an unsecured loan, which can shed light on the question of whether the move will really be worth it.

Advantages of unsecured loans

There are three main advantages of looking for a bad credit unsecured loan, although it should be noted that they are mainly obtained when applying to an online lender. The first is that the application process is very fast. Online lenders have automated approval processes, so a decision can be received in minutes.

The second is that, because nothing is offered as collateral, no possessions are put at risk and cannot be lost in the event of a loan default. Giving approval without collateral means that the lender will lose out, not the borrower.

Lastly, the lender almost always charges a fixed interest rate on the unsecured loan, making repayments much easier to budget for. Therefore, as long as there is sufficient income, the chances of defaulting on your loan are very low.

Disadvantages of unsecured loans

There are also several disadvantages to taking out an unsecured loan with bad credit. For starters, the loan terms will be poor and higher interest rates will be charged. How much higher than average the rates are will depend on the lender, and online lenders tend to be the most reasonable.

A second disadvantage is the size of the loans available. Lenders are willing to grant unsecured loan approval on smaller loans, and larger loans are considered too risky. Typically, the limit for a bad credit borrower is $ 5,000 to $ 10,000, and applicants with excellent credit histories expect up to $ 25,000.

And finally, the term of the loan is generally kept short to reduce the length of time the lender is vulnerable to default. Therefore, an unsecured loan of $ 5,000 could be repaid in 3 years. However, some online lenders are willing to grant $ 5,000 over 7 years, making the deal even more affordable.

Choosing an online lender

There are a variety of lender options when it comes to looking for bad credit unsecured loans, and some are better than others. Unfortunately, traditional lenders tend to offer the worst deals, mainly due to their overly cautious credit policies, especially these days.

Online lenders are known to offer the best deals because they specialize in bad credit loans. This means they are more likely to approve without collateral and charge more competitive interest rates.

They are also willing to offer more flexible repayment schedules and, as mentioned above, establish longer repayment periods. However, keep in mind that this also means that the amount of interest paid over the life of the unsecured loan is usually higher.