When should I use a bad credit personal loan?

Part of their convenience is how quickly they can be approved - usually in one banking day, three tops. Financial institutions don't care much about how you use an unsecured personal loan as long as you are a good candidate to pay it back.

The hitch is that because the borrower has no security, unsecured personal loans are more expensive. These days, even the new crop of low-rate credit cards can be cheaper than unsecured loans. And besides interest, watch out for annual service or maintenance fees on the loan that is either a flat fee or a percentage of the lump sum.

On the plus side, greater competition in bad credit personal loans from smaller financial institutions like the credit unions means there is a huge variation in the interest rates being charged - from 9 to 15 per cent.

And treating the transaction like a loan, figuring out the payment needed to pay it off in a set time period, "is very hard for people to set up and maintain." Shopping around First things first. Decide how much money you really need. Better question -- what's the least amount that will get you through? And have you considered other alternatives to borrowing?

"Look at your credit situation already," says Hillebrand. "It's a good time to be cautious about taking out more credit. In this economy, most households have too much credit already."

Once you decide how much you need, start shopping. Use Bankrate.com's personal loan search engine to compare rates.

"Terms vary considerably," says Mike Schenk, vice president of economics and statistics for the Credit Union National Association, an umbrella group for the country's credit unions. "So it's best for consumers to shop around."

His advice: "Call around. Find out what the terms are. A lot of people might not think of financial institutions [like banks and credit unions.] Instead, their first stop might be a payday lender, and they have considerable rates."

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