Tough economic times around the world have hurt many people financially. A lot of consumers have bad credit, resulting from missed payments and loan defaults. A myth prevailing in society is that people who have bad credit ratings, filed bankruptcy or failed to stop foreclosure will never again obtain loans, including essential loans like credit card loans, home mortgage and car loans.
The myth has its roots in truths from previous decades and probably continues to pervade society due to inaccurate threats by unscrupulous loan collectors. While it is true that people with bad credit often have difficulty securing loans of their choice, the good news is that with the advent of bad credit loans people with the worst credit can still obtain loans. This is possible even a day after filing for bankruptcy.
Bad credit history loans
If you have bad credit, you must understand that although the doors to financial assistance are no longer closed to you they open to a different place relative to people with good credit. In a world where economic times are pressing, even credit lenders are feeling the heat. As a result, credit offers for individuals with bad credit are more stringent than for people with good credit.
You will find that interest rates on bad credit loans are generally higher than normal. Often, the interest rate will be based on a number of factors, including the degree of severity of your bad credit. In other words, your experience with bad credit loans will vary greatly, depending on the nature of your loan application and the severity of your credit problems.
It may come as a surprise or even offend you that bad credit rates are set high for people already in financial difficulties, but considering the risks involved in lending to people with bad credit the high interest rate is understandable. Loan interest rates are computed by considering the particular risk of the loan in question and prevailing nationwide interest rates. Nationwide interest rates are an expression of prime rate, which is the interest rate a creditor would charge its best customers.
Secured and unsecured bad credit loans
UK bad credit loans are issued with or without security and are, therefore, either secured or unsecured. Secured bad credit loans require collateral as security for the loan amount provided while unsecured bad credit loans do not require any collateral. Unsecured loans have comparatively higher interest rates primarily because they do not require any tangible guarantee.
Secured bad credit loans, on the other hand, have relatively lower interests rates and more flexible repayment terms compared to unsecured loans because they have a tangible guarantee. Secured consolidation loans can be used for any purpose. The availability of both bad credit loan options means that both tenants and home owners can find a loan that meets their particular circumstances and needs.
If you have an asset you can place as security for your bad credit loan, it is probably a good idea to go for the secured bad credit history loan option. The benefits of a secured bad credit loan over an unsecured bad credit history loan are often adequate incentive.
However, if you do not have an asset you can place as collateral for your bad credit financing, it is probably a good idea to apply for an unsecured bad credit loan. An unsecured bad credit loan is approved at comparatively higher interest rates, but it does not require any guarantee for approval.
Bad credit loan applications
When you apply for a bad credit loan, the lender immediately undertakes to analyse your financial and personal circumstances in order to accurately estimate your repayment ability. This process helps the lender proffer a bad credit loan that is best suited for you particular situation. Applying for a bad credit loan will involve filling in a loan application form that details your basic personal and financial information. Lenders often provide the loan forms both online and offline.
If you have a history of missing bill payments or defaulting loans, you bring into the loan application a risk factor that forces the lender to increase the underlying loan interest rate. You can allay the lender’s fears by placing an asset such as your house as collateral for the loan. The lender will be more willing to offer you a loan on a lower interest and better repayment options with collateral in place because he knows you will be most vigilant to protect your valued asset.
If, however, you do not have an asset to put down as collateral and you have a history of loan repayment problems, the lender will be reluctant to lend you money without stringent loan requirements. Stringent loan requirements often come in the form of high interest rates and stricter repayment terms. To better understand bad credit loan applications, put yourself in the lenders’ shoes for a moment.
Imagine two individuals approached you, one after the other, to borrow the same loan. One person brings to the table a perfect, long credit history and the other person brings a history of defaulted loans, missed bill payments and even bankruptcy. Who would you be comfortable giving the loan?
Clearly, you would be more comfortable giving the loan to the borrower with a perfect loan repayment track record. You would need some sort of incentive to risk your money on the borrower with a history of not repaying loans. The incentive for bad credit lenders is the high interest rates charged on loans.
That said, however, there are certain high risk loans that creditors may not be willing to give individuals with severely damaged credit reports. Creditors too draw the line on risks they are ready to take when issuing bad credit loans. UK laws place a limit on the loan interest amount a lender can legally charge a borrower to protect borrowers from unscrupulous lenders. Bad credit lenders, therefore, can only approve loans with interest rates so far. Credit card and certain unsecured personal loans are among high risk loans that may be unavailable to people with severely damaged credit.
Bad credit risk offsetting and disadvantages
One way bad credit lenders offset the risk of lending to individuals with severely damaged credit is to lend less money relative to the collateral that has been placed. For example, the lender may require you to pay a large down payment to get approval take out a home loan. In the case of a bad credit auto loan, you may be required to repay the loan within a shorter time frame.
High interest rates combined with short loan repayment periods often result in large payments, which can push the proposed loan beyond the affordable range of bad credit borrowers. This situation can be distressing and is the biggest drawback to taking a bad credit loan.
Therefore, if you are facing acute financial difficulties, it is important to remember that negotiating a settlement or filing for bankruptcy actually improves your credit. Ignoring your debts and assuming things will work themselves out somehow only makes things worse.
In the meantime, conduct a thorough search for affordable bad credit loans in areas such as credit cards, auto loans and home mortgages. Besides helping you rebuild your dented credit and helping you work your way back to good credit standings, an affordable bad credit loan brings with it other benefits.
Benefits of bad credit loans
- Almost guaranteed loan approval. No matter how bad your credit rating is, more often than not your loan application will be approved. Bad credit loans are computed on a case by case basis to suit each particular situation. It is only in extreme, rare situations that bad credit loans are turned down.
- Ease of application. Usually, there is a minimal, if any, fee charged for applying for a bad credit loan. Often, all you have to do to get approval is walk into the lender’s office or visit the lender’s website and fill an application form that usually takes less than five minutes to complete.
- Short loan approval period. Bad credit loans are approved within a short time often within 48 hours of submitting your application. It is not uncommon to have some bad credit lenders make a loan decision with an hour of your application.
- No credit checks. Most bad credit loans are issued to applicants without credit checks. Bad credit lenders know loan applicants invariably have poor credit ratings and, therefore, avert potential embarrassments by not conducting credit checks.
- Collateral not necessary. Bad credit loans do not require applicants to place any collateral for the loans. Many times, all you have to do to get loan approval is provide proof of employment. This means you do not have to pawn your jewelleries or other valuables to get extra cash to put down as collateral for your loan.
Armed with accurate information on bad credit loans, it is easy to see that the benefits of the loans far outweigh the disadvantages. Keep in mind, however, that bad credit interest rates can vary greatly from lender to lender. It is in your best interest to shop around for affordable offers with the friendliest repayments terms to get the right bad credit loan. The right loan can serve you well and help you restore your good credit.
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