Personal loans are risky by definition because they are unsecured. Lenders have always been cautious when extending personal loans. Usually lenders look at the borrower's credit history to determine how much they re willing to lend and the interest rate they will charge to lend it. For many years, that left individuals with bad credit without a lifeline for emergencies.

Emergencies are an equal opportunity affliction-we all have them. Individuals with great credit have a plethora of choices; those with bad credit have fewer. Recently credit unions and some banks and savings and loans have stepped up to offer personal loans to individuals with bad credit. Banks and credits unions offer lower interest rates and longer terms of repayment. Not only that, but many credit unions and banks offer credit counseling and debt consolidation.

Once the only option for people with bad credit, payday loan companies still meet a need in the community. Usually the only requirement to get a loan is that the borrower be employed. With payday loans, the borrower writes a post-dated check for the amount of the loan and the interest. For instance, if the amount of the loan is $100, the borrower would write a check dated for his/her next payday in the amount of $115 to $130. When the next payday arrives either the borrower comes in and redeems the check or the lender deposits the check.

Because payday loans are very short-term, they present a risk to the borrower. Most borrowers turn to payday loans because they are in an emergency situation. Perhaps the car needs a repair, or their child needs to see a doctor, or maybe they need money to attend to a sick parent. Payday loans must be repaid usually within two weeks, if the borrower can't repay the loan; they pay the fees, and roll the loan over. So now the $100 loan will cost them $30 to $60 per month.

Once the borrower starts rolling over their payday loans they begin a plunge into total insolvency. According to one federal survey 80 percent of individuals who seek a payday loan, will return for at least two more loans in that year. The same survey says most individuals average between 8 to 13 payday loans a year.

Personal loans are available to people with bad credit. That caution is that bad credit is not an excuse for bad choices-look for the best loan with the longest term and lowest interest rate. And individuals should never take out a payday loan that they cannot repay in the short-term provided.