As more and more people become desperate for money, bad credit loans have been in the news a lot more recently. Put simply, more people than ever before are suffering from bad or no credit histories, and unfortunately these are the kind of people who are most likely to be applying for loans and other forms of credit. There are a number of pros and cons to taking out a loan that is targeted at people who have poor credit reports to their name, and in this article, we will be looking at some of the advantages and the disadvantages of bad credit loans. In addition to which, we will be discussing the alternatives to bad credit loans, as well as other ways in which you may be able to improve your credit score.
Some Of The Basic Pros And Cons
1. Number one on the list is that normally, these kinds of loans happen really quickly in comparison with other forms of loan. Normally, you will not be required to fill out lengthy forms that want you to detail as much of your personal life, which the bank feels is essential in order for you to qualify for one of their loans. Bad credit loans, typically take just a few minutes, either over the phone or via the internet.
2. Another bonus is that there is no shortage of companies, who are willing to offer loans that are targeted at people who do not have excellent credit scores. Just a quick internet search is all that is needed for you to see that there are literally thousands of lenders offering these kinds of loans. So it may be advisable to compare different lenders in order to secure the best deal.
1. The first thing that you will notice when searching for bad credit loans is the high rates of interest that most of the lenders advertise on their websites. As you have a less than squeaky clean credit score, you are going to be deemed as a high risk by the lender, therefore they will want to see a quicker and bigger return on their money, in return for them trusting you to pay back a loan. For this reason, interest rates, fees and charges are going to be extremely high, and this is something that you are going to have to think about before you agree to take out the bad credit loans in the first place. The biggest problem is that even if you are only borrowing a relatively small amount, you could end up paying back twice as much, and this is the biggest problem that people who apply for these kinds of loans face.
2. Many people with bad credit histories will not be aware of this, but if you apply for too many loans at the same time, it can actually have a detrimental affect on your already fragile credit score. This is because, every time you apply for any form of credit, the application gets logged onto your credit file, so if you apply for too many, your credit score is going to be damaged even further. So it is advisable to space out applications as much as you can in order to preserve your already fragile credit report.
So Just How Can You Avoid Taking On A Bad Credit Loan?
Keeping You Credit Rating Squeaky Clean
The first step in avoiding loans for people with bad credit scores is not to acquire a bad credit score in the first place, and there are a number of ways in which you can keep your credit score looking healthy.
Payment Protection Insurance
When you first apply for a standard bank loan or finance for an automobile, or even a credit card, you can contact your favorite insurance provider, and arrange for a payment protection insurance plan. The way the plan works is, that you pay your premiums every month, for the duration of the loan, however, if during the length of the loan repayment, you should fall ill or lose your job, the insurance plan will cover the costs of your monthly credit repayments. The length of these payments are typically up to 12 months, and that is because most payment protection insurance providers deem that a long enough period of time for the claimant to either have recovered from their illness, or to have gained other employment.
View Your Credit Report
Mistakes happen, and your credit report can fall victim to a mistake just like anything else, and this could be from any number of reasons. One reason might be that you have paid off a debt only to find that this has been omitted from your credit report, and if this is the case, you should make contact the credit agency, and ask them to make the necessary changes, however, for those of you who maybe thinking that this is a good way to improve your credit score, and you havenít actually paid off the debt, then you will be asked to provide documented proof.
Not everyone realizes that when viewing your credit report online, that you can actually make comments at the bottom of the screen. This is a handy feature, which allows you to point out errors in your credit report, as well as give an explanation to why a particular debt has not been paid, or paid late. It is important to remember that making comments on your credit report will not boost your score; however, some lenders may well take your comments into consideration when you apply for a form of credit with them.
Pay More Than The Minimum Requirement
Most forms of credit come with a minimum amount that you need to pay, and it can vary from a fixed amount on a bank loan, to a percentage of the outstanding balance on a credit or store card. Either way, one way in which you can keep your credit score healthy, is to make sure that you pay off the debt as soon as you can. That may not always be possible with a bank loan, as banks do not like losing the interest payments that will stop if you pay the balance off early. Some even charge a fee for early payment in order to recoup some of the interest they will lose. However, when it comes to credit and store cards, you are actively encouraged to pay off the outstanding balance in one go. Most credit cards will not even charge you interest on your purchases, should you pay off the outstanding balance at the end of each month.
It is a little known fact about credit checks, that when applying for a new line of credit, it is not just how much credit you have had, but also the amount of time it has taken for you to pay back the balance, that lenders look at when making a decision about giving you credit or not.
If Your Credit Rating Is Less Than Perfect
Of course, all of those solutions listed above, are aimed at people who have yet to acquire a bad credit rating, so if you already have a bad credit rating, then that advice is not going to apply to you. In order to improve your credit rating when it has been damaged by late repayments or because you have defaulted on a loan, there are still some ways in which you can try and improve your rating.
Paying Off What You Owe
One of the first steps you can take is to pay off all of your outstanding debts. Even if that debt has been passed on to a debt collection agency, it is in your best interests to contact them and arrange some kind of repayment plan. Once you have no more debts to pay, those defaults and missed payments will eventually disappear from your credit history, however, you may still find it difficult to obtain credit in the future.
Credit Cards For People With Poor Credit History
Unlike bad credit loans, credit cards for people with either a poor credit history are more flexible. Apart from a yearly fee, you only need to pay back what you spend, however, they are a good way in which you can improve your credit rating, and you can do this by making your payments on time, and either paying off the outstanding balance in one go, or by paying well above the minimum requirement.
The Bottom Line
As you will be able to understand, there are some advantages, and a lot of disadvantages to bad credit loans, none more so than the exorbitant interest charges you will be faced with. If you can find an alternative to bad credit loans, such as borrowing money from a friend or relative, then it is more advisable to do that, however, there are risks to that course of action, the biggest being that you risk alienating your friends and family if you do not pay them back.