What do you do when you know your credit score is not as good as it should be and you find yourself in a tight spot financially? You know if you attempt to get a traditional loan you might have difficulty keeping up with the payments. And realistically, you know you are not going to even qualify for a loan. The good thing is that you can almost always get a bad credit loan. This will put some funds in your pocket. Before you go out and start looking for bad credit loans, it’s very important to know the advantages and disadvantages of getting one.
What is a bad credit loan?
The simplest definition of a bad credit loan is a loan that you can get when your credit it not good. Bad credit is based on your credit score which is used to measure a person’s “creditworthiness.” This basically means if you have a poor score others think you are not likely to repay your debts. When you have bad credit, you become a high risk customer as far as banks and other lending institutions are concerned. This can make getting any kind of loan very difficult. A bad credit loan is a line of credit which is extended to someone who has a bad credit score. Before you go out to get a bad credit loan it is good to know both the advantages and the disadvantages associated with them.
Primary Advantages of Getting Bad Credit Loans
Some of the main benefits of getting a bad credit loan include:
You don’t have to worry about your credit history – This might be the very best part of getting this type of loan. You do not have to worry about your credit report since the lenders are not going to bother looking at it at all. They will look more at how likely it is you will be able to pay the loan off in the future. Conventional loans don’t consider any changes like increases in income or other factors before they turn you down. Lenders who offer loans to people with poor credit are more concerned about your future.
You’ll get a very quick approval – Not only are conventional loans more difficult to get, they can take forever to get an approval. Bad credit loans’ approval rate is lots higher and ranges between 80 and 90 percent approvals.
You can start to improve your credit – One reason you had trouble getting a loan is your bad credit score. But a bad credit loan will give you an opportunity to start getting positive information on your credit report. If you make timely payments, it can help improve your score and help provide you with a chance to build a stronger financial standing.
You can borrow large amounts of money – Another advantage of getting bad credit loans is you can get a larger amount of money in a shorter period of time. But you need to remember that if you borrow higher amounts you will also pay more interest.
Primary Disadvantages of Getting a Bad Credit Loan
As with any type of loan or financial arrangement, there are also some disadvantages to getting a loan including:
You are going to pay higher interest rates – Lenders who offer loans to people who have a poor credit history or bad credit report are going to charge a higher interest rate. This is because the supposed risk is a lot higher with these types of unsecured loans.
You can get hooked up with a bad lender – Just like so many other loans out there, scams do exist. If you are not careful you can end up in a bigger bind than you were in before. Make sure you are dealing with a reputable lender.
You can get stuck in a vicious cycle – Be careful to pay loans back in a timely manner, if you don’t you might find yourself in a vicious cycle of repeated debt.
Primary Reasons Many People take out Bad Credit Loans
A bad credit loan can be a great resource for someone who needs access to money but don’t have a credit history that works in their favor. There are some reasons that people take out these types of loans. Here are three main reasons that apply for many people:
- Not having enough time – It can take a long time to build your credit back up, even if you work hard on it and do everything right. There are times when you simply do not have the time needed to wait on your credit score to improve since it can take a long time. A bad credit loan is the perfect solution when you need money in a hurry but are really working on fixing their credit score.
- Don’t have a cosigner – One option many look at when they find themselves in need of money is finding a cosigner who can help sign for a loan. This is a good option when it is available since you can often get lower interest rates on a personal loan with a cosigner who has a good credit score. But if you do not have a cosigner, you may find a bad credit loan to be your best option.
- It’s your only option – Sometimes when a person takes out a bad credit loan, they really do not have any other options. When you have poor credit traditional lenders can be reluctant to work with you in any capacity. When you find yourself in this situation and you need some money it may be the only choice you have available.
Finalizing your Loan
In most cases there is a quick approval and then you will have the money you need to catch up on your bills, pay off medical expenses or cover an unexpected emergency. You’ll have a fixed interest rate and monthly payments. Check with your lender about any additional fees so you are not caught off guard by any fees. Then make sure you make timely payments as scheduled. This will help repair your credit score and it will give you a good reputation with the lender in case you need to borrow from them at a later date.