Do you have a pressing debt and are thinking of getting a bad credit loan to pay the debt off? There are some factors you’ll need to put into consideration. A bad credit loan is usually given to people who hardly have a credit history. Also, these loans come with a higher interest rate and more restrictions.
Bad credit loans come with greater restrictions compared to other loans to reduce the risk of you failing to pay back. On a lighter note though, if managed responsibly, bad credit loans can help you get out of debt. Before you acquire any loan, first work out how much you can repay monthly.
Then look at the different financial companies and compare their loans. Also consider your eligibility to increase your chances of approval. Remember there are pros and cons for each loan you get. Learn more by reading on.
Pros of Bad Credit Loans
Have you experienced those long nights of tossing and turning due to a financial emergency? Those days are the stuff of nightmares, and this is when bad credit loans come in to save you. Bad credit loans offer you fast cash that you need to offset a pressing financial emergency.
No Credit History Check
One of the greatest advantages of a bad credit history is that they don’t consider your credit history. When your financial institution is reading through your application, they won’t be looking at your credit history.
Even if they do, it won’t affect the outcome, because if you are approved, you will get the loan despite your lack of or a low credit score.
Access to Large Amounts of Money
Bad credit loans allow you to request for large amounts of money despite a bad credit. Just ensure you are able to pay it off monthly. As a borrower, ensure you inquire about hidden costs and fees attached to the loan.
They Can Improve Your Credit
Much as a bad credit loan doesn’t look at your credit score, it will help you build one. Moreover, with it, you access funds to pay off an old debt. Also, you are able to responsibly manage your financial situation and pay debts on time.
When you budget well and responsibly manage debt, you will be increasing your credit score which will make your potential lender and employer trust you more.
Longer Repayment Period
Bad credit loans are known to have a longer repayment period that ranges from one to five years. This gives you the borrower ample time to clear it without being under pressure compared to payday loans that extend to you a small amount but want it repaid back on your next paycheck.
Cons of Bad Credit Loans
Bad credit loans come with high interest rates as a way to shield the lender from you failing to pay the debt. Since you don’t have a credit history or a bad one, it indicates that you are a riskier borrower.
Some lenders will ask you to agree to automatic withdrawals of an agreed amount from your account monthly. This makes it look like you need someone’s help to pay off debts. It’s even more difficult when something urgent comes up and you want to adjust or change the withdrawal date.
Since you are already considered a risk, lenders want to protect themselves as much as possible. Therefore some banks will extend to you secured bad credit loans, which means, they will be attached to collateral.
Lots of Fees to Pay
Bad credit loans have a number of additional fees for you to pay. They include origination fees, late payment fees, personal check use fees, returned payment fees, among others.
It’s important that before you sign for the loan, you understand all these fees involved so you don’t come complaining when the monthly fee looks actually bigger than what you thought or agreed to.
Much as we are all bound to have financial situations once in a while, you want to build your credit score when things are going well for you.
A bad credit loan will bail you out in case you have a low credit score. Judging from the disadvantages of bad credit loans above though, you will want to keep away from them as much as possible.