Overview
When you have bad credit, almost all banks or
credit unions will not allow you to get a loan. The bad credit loan,
however, can help people who are currently in a situation of bankruptcy,
foreclosure, or other credit-challenged circumstances. When you have a
poor credit rating, you are considered a risk for banks and credit
unions. When people with a poor credit history need money, the only type
of loan they may be able to get is the bad credit loan, which charges
very high interest rates.
How It Works
There are many different ways you can acquire bad credit loans.
People who need this loan can search online for companies that give bad
credit loans. You can get a payday loan, where you postdate a check for
usually no more than two weeks. The check covers the amount of the loan
plus interest. Usually, the basic requirement is that you have some kind
of income.
There are two types of bad credit loans: secured and unsecured.
Secured bad credit loans can be taken up if you offer a vehicle or some
other valuable property as collateral for the loan. If you do not repay
the loan properly, the company seizes the collaterated car or the
property. On the other hand, unsecured bad credit loans do not require
any collateral, but the interest rates are higher than the secured bad
credit loans.
Some companies offer bad credit loans without either of these
prerequisites. You are required to show one or two recent check stubs to
show you have an income that is over and above their lowest allowed
amount. You are required to sign your name, report your current
financial status, and assure them of regular repayment.
Benefits
If you need cash quickly, bad credit loans, like payday loans or
title loans, can provide you with cash the same day you apply for it.
This can help you pay bills and prevent worsening your situation. It
will also save you late fees on your payments or NSF fees from bounced
checks. People with bad credit can get money from friends and relatives
who may charge a lower rate of interest. However, the person must make
sure that he repays the amount quickly.
Cost/Pricing
Most bad credit loans charge up to 30% interest, or more accurately,
they have an annual percentage rate (APR) in the range of 500% to 600%.
This is higher than you would ever pay on a traditional loan or even a
credit card balance. For the convenience of being loaned the money
quickly without a credit check, the interest is often worth it. Bad
credit loan companies charge high interest to offset those loans that
default. The better the credit history, the lower the interest rates
are. So, a person with a bad credit history will have to pay a higher
interest rate as compared to another person whose credit history is much
better.
Timing
For short-term loans like payday loans, you must figure out if the
amount you will save in the late payment and NSF fees is worth the
interest you will pay on a two-week loan. For longer loans, read the
fine print because you could be paying several times the amount of the
loan in interest.
Companies/Industries
There are a number of financial companies offering loans for people
with bad credit. Payday loan companies, title loan companies, and small
same-day loan companies all offer bad credit loans, as do many companies
now online. Zimbio and Credit Loan is a couple of companies that offer
bad credit loans.
