Things to Expect When You Take A Bad Credit Loan
Are you thinking of acquiring a loan, but hesitating because of your low credit score? Acquiring a loan is inevitable. It could be for education, for an emergency, or any personal reasons. There will come a time that we will need extra cash in hand.
But given your current credit standing, are you eligible for a loan? What are the things you need to know if you can get a loan with your bad credit standing?
Some loans are offered to consumers like you. However, there are things that you need to know if you apply for a loan with a bad credit score.
Higher Interest Rate
One of the things you need to expect if you have a bad credit score and still plan to get a loan is the high-interest rates. For individuals who have a good credit score, lenders give them a good deal on interest rates.
On the other hand, if your credit score is categorized as low or bad, a higher interest rate will be given to you due to the lender’s risk in lending you the money. A bad credit score can be an indication that you are irresponsible in your finances, and giving you another financial obligation may worsen it.
Needs a Collateral
Some lenders still consider giving bad credit individuals a loan. However, they may require security for the loan they are offering. Before you can get the loan, you will have to agree to use collateral.
Collateral can be an asset you own. The most common collateral used by borrowers and are often approved by lenders are car and property. But you can also use your expensive watch or valuable jewelry, depending on the amount that you’re borrowing. Collateral is a must, especially if you are currently out of work in addition to having bad credit.
Fixed Repayment Terms
With bad credit, you will likely have no choice but to accept the lender’s conditions, including the repayment terms. Most bad credit loans have fixed repayment terms, which ensures that the borrower will pay the loan according to the lender’s preference.
The repayment terms can be added to your contract, and signing it means you agreed to it. However, make sure that you can afford the repayments throughout the loan. If you fail to pay, it can greatly hurt your credit score and put you in a more severe financial difficulty.
Limited Options
Having bad credit will limit your options with lenders. Even though lenders cater to bad credit individuals, it is still hard to look for legitimate ones and lenders that will fit your condition.
It is best to do some research first before choosing a lender to provide your loan. Study their terms, fees, and rates. You also need to look for feedback from previous customers to make sure that you are choosing the right lender for you.
Additional Responsibility
Getting into a loan corresponds to responsibility. If you have a bad credit score, you might have numerous unpaid debts you struggle to pay or a low income to debt ratio. Taking a new loan to pay your existing debts or for other purposes is just another payment obligation. It can even put you in a vicious debt cycle, which is the last thing you would want as a borrower.
If you take a bad credit loan, it is expected that you will need to pay more each month. It is an additional expense for you, which means you also need to earn double to keep up with all your debts and obligations.
Friendly Reminders
If you take a bad credit loan, make sure to be prudent as this type of loan is sometimes offered by illegitimate lenders. Individuals who opt for a bad credit loan are desperate, making them vulnerable and easy to target.
Here is the list of tell-tale signs of a fake lender that only wants to victimize you:
- No accreditation from BBB or Better Business Bureau
- Have a lot of negative reviews
- Do not require collateral or proof of income
- Offers too good to be true loan terms
- Asks for upfront payment
- Charge you with undisclosed fees
- Offers you the loan through unsolicited emails and phone calls
Always keep these signs in mind, and don’t be fooled by their fake promises. If you see these signs to the lender you are considering taking the loan from, it is better to dismiss that lender and look for another. Make reading a habit, read the fine print, read the reviews, and most of all, read the contract before you commit.
Takeaway
It is not bad to take up a loan even if you have already had outstanding debts as long as the money will be used correctly and for important matters only. Do not let your credit score drop down even more due to your irresponsible decisions.