Whenever needing to take out a loan to pay for medical expenses, college tuition, or any other sort of emergency we find ourselves in, what lenders always look at is your credit score.
If your credit score is bad, then chances are you won’t be given a loan. But there is a way to obtain a loan even if you have bad credit.
While many deem these types of loans risky, not everyone agrees with the notion. Considering that bad credit loans are indeed legal, we thought to give you a rundown of the potential risks involved.
So with all that said, let’s start.
A Word Of Caution
It’s safe to say that having bad credit doesn’t mean you can’t repay a loan. Various factors play a huge role in determining your credit score. But we oftentimes find ourselves in a desperate situation where having bad credit is something we’re quite used to.
Before taking out a bad credit loan, it’s important that you consider the following. Having bad credit is one thing, but that doesn’t mean you cannot repay it. Never take out such a loan if you aren’t capable of paying it off.
Now that we’ve gotten that out of the way, let’s jump into the potential risks.
High Interest Rates
If you have never taken out a bad credit loan, then it’s important to understand the fact that they do have quite high-interest rates. While this differs from lender to lender, there are some lenders that do indeed impose very high interest rates.
The reason why this is the case is that these lenders aren’t quite sure that you can repay it. While many bad credit lenders do impose rates under 10%, you should absolutely avoid those that charge three to four times.
The obvious risk lies with these types of lenders. Not only is 30% far too much to repay a loan, but you will also have to pay additional fees if you don’t meet the repayment deadline.
That puts us nicely to our second risk, which is…
Late Payoff Penalties
Late payoff penalties aren’t exclusive to bad credit loans. Your bank will also charge you extra penalties if you fail to repay in time. This is seen as universal by all lenders. You are taking a risk by taking out a loan, and you are risking huge penalties if you don’t repay in time.
You should always keep that in mind and always make sure that you are financially prepared to repay the loan before the deadline.
Not Getting Approved
Most bad credit loans guarantee you will get approved. Although that might be the case, many lenders are actually using this as a tool to attract people with bad credit scores.
And make no mistake about it, some people have a very bad credit rating. When this is the case, it is doubtful if anyone will give you any kind of loan.
But there are exceptions to this. Namely, you can visit slickcashloan.com/bad-credit-loans-guaranteed-approval.php to learn more about credit loans with guaranteed approval.
Much like late penalties, certain lenders will also give impose early payoff fees. This is a shady move by shady organizations that deal with shady businesses.
Not every bad credit lender is like this. And you should absolutely stay away from lenders if they mention any sort of penalties or fees for early payoff.
Most of the lenders that operate this way know that if you pay on time, there are no risks involved. And by taking that into account, they have come up with ways to further make things difficult for you.
The general rule of thumb when taking out any sort of loan is to focus on early payoffs. This makes sure that you don’t pay any fees or penalties. But if you notice that your contract includes fees for early payoff, then that is an instant risk you have to be aware of and stay away from.
How To Repay Bad Credit Loans
No doubt many of you ask this question. One thing led to another and you’ve made a very bad mistake of picking the wrong lenders to go with.
When this is the case, repayment is absolutely necessary. Fortunately for you, there are ways to do that. So let’s go ahead and find out.
Go At Your Bank
First things first, most banks will not turn their back on a customer. If you are indeed their customer, then try to make a deal with them and try to take out a personal loan to deal with the previous one. You can go about this in a few ways, but simply mention that you want to be a customer for the next two decades. Chances are, they will not reject you and you can use the money to repay the previous debt. It should be mentioned that this won’t work 100% of the time.
Joining A Credit Union
If you’re in a very sticky situation much like the previous one, don’t solely rely on the bank to be your lifesaver. Another financial institution you can go to is a credit union. Credit unions work in a few ways. Members of credit unions enjoy relaxed rules that impact interest rates, fees, and other factors.
You can go to a credit union and try to take out a personal loan to deal with the unfortunate situation you find yourself in.
Ask Friends And Family
If all else fails, then asking for friends and family to help out is a last resort. While no doubt many of you will consider this option first, we advise against it as you might risk losing friendships and sour relationships with your family. This can happen if you also fail to repay them in time. Your friends and family are there to support you, but who knows how they will react if you fail to repay them. There is no telling how long they will wait on your repayment.