Debt is a significant feature of most people’s daily life in the US.
For instance, the average American has roughly $38,000 in personal debt to repay. And that doesn’t even include home mortgages.
Those are scary figures. And they seem to be getting worse each year.
A snowball effect comes into play too. Indeed, many people are forced to borrow more money, in the form of personal loans, to consolidate existing debt. Before long, there’s a heavy financial burden to bear.
It’s one thing to do that with a good credit score. But it’s another entirely to do it with bad credit. Bad credit loans can be an important lifeline for people in dire financial straits. But there are vital considerations to take into account before committing to them.
Are you considering applying for one?
Keep reading to discover 5 crucial things to know beforehand.
1. The Lender’s Reputation
Not all loan providers are made equal.
Just as there are good restaurants and bad restaurants, there are good and bad lenders. It’s absolutely critical that you get your loan from a well-reputed provider.
Don’t, and you risk getting into even deeper financial trouble. Many lenders, sometimes referred to as loan-sharks, exist for the sole purpose of getting as much money as possible from you.
They’ll give you the money you need with no questions asked! Then they’ll ramp up the interest rates and demand repayment before you know it. There’s nothing you can do. Before you know it you’re repaying vast sums of money more than what you borrowed.
Treat your finances like your physical health. In the same way that you wouldn’t see a doctor with an awful reputation, don’t seek a loan from questionable lenders.
Find out their reputation by doing your research. Speak to friends and family, read online reviews, and see what other people have to say about their experience.
2. The Interest Rates
Every loan comes with interest attached.
After all, this is how the lender gets paid. There’s a reason it’s called an ‘interest’ rate. Without one, it’s literally not in anyone’s interest to lend you the money. You pay back the loan with a little extra on top. It’s just part of the deal.
But never take out a loan if you don’t know how much you’ll have to repay. Ask outright what the interest rate is. Find out how much you’ll owe and verify in advance whether you can expect the rate to change.
Obviously, the lower the interest rate, the better. Fixed rate loans are your best bet too. It means you can accurately work out the total amount of money you’ll have to pay back.
Now, you can expect loans for bad credit to have a higher interest rate than other personal loans. However, better lenders will keep the rates competitive. If it’s too high, don’t get it.
3. The Lender’s Checks
Be wary of loan providers that offer money with no credit check at all.
Look, checks are never going to be as rigorous as they can be with personal loans. After all, this is a loan specifically for bad credit! It’s expected that you won’t have a stellar credit history.
However, not performing any check should raise alarm bells. Some lenders literally want you to default on the loan. People who can’t afford to repay end up taking on more debt. It becomes a toxic cycle that’s in the financial interest of the loan provider. They make it as easy as possible for you to access the initial sum of money in order to abuse your financial woes over time.
Sensible, trust-worthy lenders do the opposite. They will perform background checks and consider your ability to pay back the money before offering it to you.
That said, steer clear of ‘hard-checks’ too. They’ll impact your credit score for the worse by signaling the check to credit bureaus. Your best bet is a ‘soft-check’. These won’t harm your score in any way.
4. Your Ability to Repay
This consideration must be front and center of your decision.
Can you reasonably expect to pay back the money you borrow? If you can’t, then think hard about whether it’s the right option. Remember, debt becomes a vicious cycle.
You take it on, can’t repay it, and so take on more to consolidate the initial debt. Credit scores worsen, interest rates increase, and before you know it, you’re up to your eyeballs in repayments you can’t afford.
A big part of this is knowing how long you have to repay the money. For instance, a payday loan can be a recipe for disaster. You take the loan on the agreement you’ll repay it when you’re next paid. It’s far better to repay the loan in fixed installments at regular intervals.
5. Your Other Options
Is a loan absolutely necessary?
Is this really the only way you can get the money together for your needs?
Never go into debt if you don’t have to. If there’s any other solution to your financial trouble, then do that first. Try taking on a second job, cutting existing costs, saving more each month and so on.
Ask friends and family for help too. You may hesitate to do so. But there are many benefits to this approach. For example, you’re unlikely to have to pay back a family loan with interest attached. You borrow and repay the same amount of money. Repayment terms
Make Your Bad Credit Loan Decision
There you have it: 5 things to know before applying for a bad credit loan.
Unfortunately, the average American is riddled with thousands of dollars of debt. It can be tempting to take out further personal loans to consolidate it. It becomes a toxic cycle, and bad credit can only exacerbate the issue.
Hopefully, with all this information in mind, you’ll be able to decide if getting a bad credit loan is right for you. Remember, don’t trust dodgy dealers, and be sure to find a loan that works for your needs and situation!
Do you need a personal loan and have bad credit? Looking for more information? Then contact us today to see how we can help.
Here are some other articles that you might enjoy:
Personal Loan for Bad Credit: How It Can Help You in an Emergency
Here’s What It Takes to Apply for a Credit Card with Fair Credit
Installment Loan vs Payday Loan: What’s the Difference?
Here are 4 Signs You Should Refinance Your Personal Loan