Second Chance Loans—Worth It or No?

You can get money fast with a second chance loan, but you may get stuck with high interest rates or hidden fees. Here’s what you need to know.
Written by Bonnie Stinson
Reviewed by Jessica Barrett
A second chance loan is a way for borrowers with poor credit to access financing with minimal barriers. This money can be used to purchase a vehicle, for a mortgage, or personal expenses. However, second-chance loans come with some serious drawbacks.
It’s no secret that mainstream lenders make it extremely difficult for people with no credit or bad credit to get a loan. Second-chance lenders, on the other hand, do not require credit checks, so you’re almost guaranteed approval. 
It sounds appealing, but these deals usually come with higher interest rates and other disadvantages. Additionally, you will also need to pay for
car insurance
and other maintenance costs once you purchase the vehicle, so the higher interest rates could leave you strapped for cash. 
So, are second-chance car loans worth it?
, the
trustworthy insurance comparison app
, has assembled this quick guide to help you make your decision. 

What is a second chance loan?

A second chance loan is a loan for borrowers with poor credit who would struggle to qualify for traditional financing. Second chance loans are mostly offered by car dealerships, but you also can get a personal loan or mortgage this way. The application process is much less extensive as you don’t need to run a credit check to apply.
Second-chance loans are considered a type of subprime lending because most borrowers are at high risk of defaulting. As such, almost all second-chance loans charge much higher interest rates.

How a second chance loan works

To get a second chance loan, you first need to find a lender and fill out an application. These loans are typically short-term, high-interest loans, and they are designed around most people’s two-week paycheck period—so your credit score may not be a factor. 
The loan term can be longer than two weeks, but most second-chance borrowers use these loans as a short-term financing tool. It’s normal for the full amount to be due at the end of the term. Wait any longer and you’ll owe exorbitant amounts of interest.
If you get a second chance loan with a high-interest rate, you may wish to refinance as soon as you’ve bettered your credit. Regardless, second-chance loans should be paid off ASAP to minimize their impact on your finances.
Key Takeaway Second chance loans provide quick financing with minimal strings attached, but consequences can be dire if you cannot pay off your balance by the agreed-upon date.

Pros and cons of second chance loans

Second-chance loans could be risky, but there are reasons to consider applying for one. 
Here are some advantages of second-chance loans:
  • Access to financing for people with poor credit history
  • Lower likelihood of rejection due to fewer qualification requirements (no credit checks or lengthy application forms)
  • Fast processing time (it can be just a few hours between applying and receiving the money)
  • No upfront fees
  • Can use the money for whatever you like with no strings attached
  • On-time payments help to build your credit score
You should also consider the drawbacks, including:
  • Extremely high interest rates mean you’ll end up paying more in the long term
  • Possible hidden transaction fees
  • Non-negotiable repayment period
  • Severe penalties if you are unable to pay
Additionally, you may be required to install an ignition interlock device or GPS locator in your vehicle if you get a second chance car loan. This device allows the lender to seize your vehicle if you can’t pay what you owe on the loan.

The bottom line on second chance loans

Because of the monetary risk associated with second-chance loans, we recommend that you see if you can qualify for loans through traditional routes before resorting to this option. A traditional car loan will be less expensive and less risky in the long run. 
If you must use a second chance loan, be sure you have a firm plan to pay it off immediately. A second chance loan will not make things any easier if you don’t have a strategy to get out of debt—you could be in more financial trouble because of the high interest rates. 
Continue to improve your credit score so you can qualify for a traditional loan. Get bills in your own name, and pay off your balances frequently. Even six months of responsible payments can make a difference.
Keep in mind, being a car owner can be expensive outside of paying off your loan. One way to save money is by letting Jerry help you find the best rates on
car insurance
. The average Jerry user saves over $800 a year. 
You might be overpaying for car insurance. Know for sure by trying the free
licensed broker
that offers end-to-end support, the Jerry app gathers affordable quotes, helps you switch plans, and can even help you cancel your old policy.
Haven’t shopped for insurance in the last six months? There might be hundreds $$$ in savings waiting for you.
Judith switched to Progressive
icon savingsSaved $725 annually
Alexander switched to Travelers
icon savingsSaved $834 annually
Annie switched to Nationwide
icon savingsSaved $668 annually
Reduce your monthly car payments in minutes?
Find out if Jerry can reduce your payments by an average of $150/month
Check your rate!

Easiest way to compare and buy car insurance

No long forms
No spam or unwanted phone calls
Quotes from top insurance companies
Find insurance savings — it's 100% free