Bad credit loans are the only avenues available for people with bad credit. The best way to avoid having to take them is to not have bad credit in the first place, but sometimes there is no other choice. Before you do take one of these credit loans, you need to learn some hard truths.
Expect High Interest
The better your credit record the better interest rates you can get. Those with negative credit records will have to pay higher interest rates. Look at payday loans and you will see that the interest rates can sometimes enter triple figures. Other financiers will not give you anything below double figures if you have bad credit.
This means you can end up paying far more for a loan than is necessary.
To lenders, a bad credit record means you are untrustworthy when it comes to money. Nobody in his or her right mind is going to take a risk on you. Instead, they will ask you to provide some collateral. This is known a secured loan.
The most common type of collateral you will be asked to put forward is your home. Fail to pay the loan and you could find yourself on the streets.
Need $5,000 to buy that new car? Forget about it if you have bad credit. It can be extremely difficult to find a reputable lender for bad credit loans let alone for higher limits. It is why credit cards designed for people with a negative credit score only have limits of a few hundred dollars. These loans are not as useful because you are heavily limited on how much you can apply for.
Due to higher interest rates, you will have to make greater monthly repayments. This brings a higher risk on your part. Monthly repayments are less manageable, so you are going to have to put up with the fact you may find yourself in a situation where you are further damaging your credit record because of missed payments. We recommend carefully thinking about your finances prior to taking out a bad credit loan. Sometimes it’s better to not take out the loan at all. You don’t want your credit record driven further into the ground.
Many debtors take out bad credit loans because it is the last place they can turn. They are desperate for funding. This has led the industry to becoming a haven for people who are prepared to take advantage of people.
If you are searching for one of these loans, you have to examine the lender to ensure they are genuine. There are no guarantees because these are private companies and moneylenders. When checking out a lender, here are some of the points you should keep in mind:
- Do you have to send out an upfront payment before you can obtain the loan?
- Does the company have a history of unhappy customers and/or fraud?
- Watch out for companies that claim to not care about your bad credit. No responsible lender takes such an approach to loaning money to people.
- Is the company a copycat company?
- Does the company have a physical office you can visit?
Handing Over Responsibility
Many bad credit loans require you to have a co-signer. The person who co-signs the loan must take on the responsibility of you paying back the loan. This is a lot of pressure and it’s an unfortunate hassle you’ll have to go through if you want to obtain the funds you want.
A bad credit loan may seem like an easy way to negate the problems associated with a bad credit record. It’s not all it seems, though. There are many harsh truths you are going to have to face if you want to go down this route. When in need of a loan, one can always leverage the equity of their home. It is important to become familiarized with Home Equity Loan Rates.
If you do decide to take out a bad credit loan, crunch the numbers and think carefully about whether this is the right option for you. Getting this wrong could make a bad credit record even worse, thus further ruining your ability to obtain loans.