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.

Requirements and Benefits of Debt Consolidation Loans and Balance Transfers

Debt consolidation offers many benefits to debt-ridden borrowers, including tax deductible interest and affordable monthly payments. This is a way to lower the interest rate and improve your credit score provided that you make timely payments.

Benefits for Borrowers

percentOne of the benefits for borrowers is that they are offered a single loan to pay off multiple debts. Borrowers make one payment instead of having to worry about multiple deadlines and monthly payments. One option is to consolidate high interest credit cards to avoid interest charges. Many issuers advertise promotional offers and a low or zero rate on balance transfers. Besides getting rid of debt faster, consolidation is a way to stop penalties, late fees, and collection calls. In general, this is a solution for borrowers with multiple loans and credit cards who are behind on their payments. Before you choose a method, ask for any government charges and lender fees, including exit fees, loan application fees, taxes, duties, and others. Taxes and fees may apply, depending on the type of loan and the lender.

Requirements and Criteria

Financial institutions look at factors such as the applicant’s overall stability, employment history and earnings, payment history, and whether collateral is offered. One option is to apply for a home equity loan and use your equity as collateral. Your payment history is also an important factor, and missed or late payments are a red signal for financial institutions. A history of late payments, delinquencies, foreclosures, and bankruptcies could disqualify you. Banks want to make sure that applicants are able to meet their monthly payment. Your earnings and other sources of income are another factor that plays a role. List all sources of income, including additional sources such as alimony, child support, public assistance benefits, life insurance proceeds, and others.

How to Apply

Before you apply, make a list of your debts, including auto, student, and personal loans and credit cards. Look at your monthly payments, interest charges, prepayment penalties, penalty interest, etc. This will help you to choose between a balance transfer credit card and a debt consolidation loan. Then you can approach different lenders or use the services of a professional. Another option is to apply for a credit line and pay your high rate balances and loans first. Try to find a lender that offers loans with no prepayment penalties so that you pay off your debts faster.

Alternatives to Consolidation

If you do not qualify for a debt consolidation loan, consider alternatives such as credit counseling, negotiating with creditors, consumer proposal, formal proposal to creditors, and self money management. Bankruptcy is one option if you are knee-deep in debt, but it depends on the types of loans you have. Negotiating with creditors, for example, is an arrangement whereby financial institutions agree to receive a portion of the outstanding balance.

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