As in the case of most loan terms, bad credit loans have come a long way from their modest beginnings. In the past, bad credit loans were almost exclusively reserved for individuals with severely damaged credit histories. Those loans, of course, were short-term and were designed to help those with less than stellar credit histories make certain that they could make the mortgage payments on their homes or other real estate assets. Now bad credit loans are much more common, and they serve a variety of purposes for individuals with all types of credit histories – including the more traditional financial institutions.

Bad Credit Loans

Subprime loans are made through private lenders who specialize in the lending of these types of loans. According to the Association of Independent Personal Finance Advisors, subprime personal loans can be defined as those loans that were issued to borrowers with poor or subprime credit scores in the past. As defined, these subprime personal loans are based upon borrowers’ credit histories and credit profiles as compared to those of traditional borrowers. Because there is a greater emphasis on credit worthiness rather than credit history, bad credit loans may be offered to borrowers who do not necessarily fit within the traditional credit scoring categories. Borrowers may be required to have an asset value that is higher than the amount of money loaned, although the loan terms will be limited to a shorter period of time and may also be limited in scope. Regardless, subprime personal loans are designed for those who need a little extra help with their finances and have experienced a recent drop in income or are already past due on their other loans.

These loans come in a wide range of interest rates and terms, so consumers should shop around before accepting a specific loan offer. While many lenders tend to charge relatively similar interest rates for bad credit loans, it is important that the loan agreement fully explains any and all fees that may be associated with the loan. For example, some lenders may require borrowers to pay application and processing fees, annual fees, or a certain percentage of the total loan amount. In addition, borrowers should make sure that they read all fine print details of any contract before signing.