Posted on: 17 July 2016
If you have bad credit, you might have found that your borrowing options are rather limited. One great option to look into is a collateral loan, such as a pawn shop loan, which involves handing over a valuable item as collateral so that you can borrow money. These are a few reasons why this can be a better loan option than a payday loan or other similar type of non-collateral loan for bad credit.
1. Reduce Your Interest Rate
Lenders that loan money to people with bad credit often have to charge high interest rates because they are taking a big risk by granting the loan. With collateral loans, however, the loan is less risky for the lender because the lender has something to hold as collateral in case you do default on your loan. This means that the lender might not charge as high of an interest rate, allowing you to save money while still borrowing the money that you need before your credit has been repaired.
2. Borrow More Money
Another benefit of a collateral loan is the fact that you might be able to borrow more money with one. Many lenders that loan to people with bad credit are nervous about extending larger loans, since they worry that they might not be paid back. When you borrow money that has been backed by collateral, however, you may be able to borrow a larger sum. If you're needing money to help you get caught up on your finances or to make an important purchase, a collateral loan can make the difference between borrowing enough and not having enough for what you need.
3. Enjoy an Easier Application Process
On lending applications, many creditors require you to answer a ton of questions before they will allow you to borrow any money. With a collateral loan, since the lender has collateral, the application and approval process are often a whole lot easier. If you need to borrow money quickly or if you simply don't feel like dealing with a tough application process, this can make a big difference. You will often still be required to fill out a short application, but you generally will not have to answer as many questions or provide as much proof of things like income and references.
As you can see, for someone who has bad credit, a collateral loan can be ideal. Luckily, taking out one of these loans should be easy if you find a local pawn shop or collateral lender that works with individuals who have low credit scores. To learn more, contact a company like Sol's Jewelry & Loan.Share