A second chance loan is an opportunity to restore your credit through a loan (usually at a much higher interest rate), used to help restore your credit. This type of loan is sought out by consumers usually after they’ve had a life event they are recovering from, like people who are recovering from a divorce or the death of a close family member. Some banks (or finance companies) will offer them a “second chance”… This will enable them to re-establish themselves as credit worthy in the eyes of lenders. Second chance loans are both good and bad. While they give you an opportunity to restore your credit, they are issued at interest rates that sometimes exceed 20 percent. That’s why we recommend you only request a loan of this type not to exceed $1000. This level of credit, when held for 6 months, or greater, is manageable and seen as positive by the credit bureaus as long as the account is kept current. Taking this type of loan will help restore your credit and get you on the road to recovery.
Second chance loans can be either secured by another account or property you own, or they can be unsecured. Unsecured second chance loans come with a much higher interest rate, while secured second chance loans are usually much lower. Secured loans claim “title” to the property you are using as collateral. If you default on the loan, usually failing to make a payment after 60 days, the bank claims the property as their own. Usually, these type of arrangements are guaranteed with automobiles or real estate. Unsecured loans are a little different because the lenders are basing their approval decision on how good your credit is. Once your credit is re-established, they will obviously be more willing to lend you what you need because you’ve proven that you can effectively manage your credit and recognize how important it is to remain in good standing with your financial partners.
These loans offer an incredible advantage by keeping your payments low, while restoring your credit. As your “on time” payments are received, the history of your payments are reported to the big 3 credit agencies (Experian, Equifax, and Transunion); which helps to improve your credit score over time. Banks see these payments as very positive and become more and more willing to lend you money at far more competitive rates than you would’ve gotten without this positive credit history. Again, as long as your repayment of the loan doesn’t break your personal bank account, it can be worth it to take out this type of loan. Ultimately, you’ll be glad you took a loan under “second chance” conditions, since your credit score will improve over the course of time putting you and your family in a much better position to afford the things they need to live a full and prosperous life.