Prevent a Situation Where You May Need a Bad Credit Loan

Bad credit loan usually refers to a loan that is given to a borrower with bad credit history due to late payments and defaults on a loan by the individual. Financial institutions typically do not lend money to individuals with poor credit history because of the high risk of default (see a list of lenders here: Life on Credit). But, when a financial institution advances money to an individual who has poor debt ratings, they charge higher borrowing cost increasing the total repayment amount. Two types of bad credit loans exist; secured and unsecured loans. Secured bad credit loans are mostly pledged by a house or a plot that is in ownership of the borrower. Unsecured bad credit loan is not backed by any property, land or vehicle and thus is not awarded generally nor is it very common.money1

Usually obtaining a bad credit loan is considered a decent way out for individuals who possess poor credit rating, yet, getting such a debt may offer a host of issues. These problems need to be considered before making a decision to get a bad credit loan. Since bad credit loans usually charge a very high interest rate, it is possible that getting such a loan to fulfill some immediate need may prove to be disastrous to your current debt problems. Usually bad credit loans charge an interest rate of 15 points more than the prime rate.
Additionally, individuals may put themselves into a vicious cycle of loans if they are obtaining a bad credit loan due to their default on a previous loan. This may put you in an irreparable position. Therefore, to prevent such a situation from arising, it is necessary to avoid a hasty decision in getting a bad credit loan. You can also ask your closed ones for assistance in your time of need to support you in making a better conclusion.

You may also prevent a situation where you need to get a bad credit loan by organizing your expenses and preventing any unnecessary expenditures. Once this is done, you may be able to save some amount every month gradually relieving yourself of your debt problems. Additionally, it is also considered wise to make monthly budgets and plan ahead in order to prevent yourself from landing into a bad credit situation.

Prior to reaching a conclusion of obtaining a bad credit loan, it is wise to analyze various parts of the debt and then arrive to a conclusion. Looking into other options is useful because it aids you in matching the interest rate and the length of the loan that different creditors may propose. Besides, paying a large down payment is also useful as it lowers the loan and hence lightens the burden of responsibility on the borrower.

Lenders Who Offer Unfavourable Terms and Hefty Interest Rates

Two types of debt instruments are taken into account when assessing the borrower’s credit history – personal loans (instalment loans) and revolving credit such as personal lines of credit. The problem is that borrowers who experience financial problems and build up a couple of negative transactions find it difficult to dig their way up. They are either turned down by mainstream lenders or are offered unfavourable terms and hefty interest rates. That is why borrowers resort to Canadian secured loans. Those who have some valuable asset to offer against the loan stand a better chance of having their loan application approved.

Moreover, they are often offered a more reasonable interest rate, thus saving money on interest. Borrowers find their monthly payments more manageable, and it is easier for them to budget. Regular payments, on the other hand, help rebuild credit.

Using a prepaid card or a secured credit card is another way to rebuild credit. Secured credit cards are offered by mainstream banks, many credit unions, credit card companies, and other financial institutions.

Some banks offer unsecured credit cards only. Many banks started offering unsecured credit cards with higher fees and interest rates and lower limits. Still, this is a good option to build or rebuild credit. Secured credit cards are intended for people who seek to establish or rebuild credit after some major event, for example, serious illness, loss of job, or divorce. To this, borrowers are advised to make sure the card issuer reports to all credit reporting agencies. If they do not report, the borrower has lost a key benefit. In general, if offers for unsecured credit cards start coming to your mailbox in a couple of months, you can be sure that your credit card company reports to the credit reporting agencies. Inquire whether the bank flags the report as a prepaid or secured credit card because this will be a deterrent to establishing or rebuilding credit. Secured credit cards and secured loans are a good choice for borrowers with poor credit. Borrowers with poor credit have a better chance of getting approved for a secured loan if they offer collateral to the lender. Thus, financial institutions take less risk. People who apply for a secured credit card deposit money with the credit card company. If the borrower is unable to make payments, the issuer may keep the deposit.

How long does it take before financial institutions offer you an unsecured credit card? Credit card companies and banks want to keep their clients, which is why they will offer you an unsecured credit card provided that you make regular payments. In most cases, it takes one year to improve your credit score, and you are eligible to apply for an unsecured credit card.

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