Over the last few years, there has been a considerable increase in the number of type of loans that are given to the masses. There have been foreigner loans, education loans and many other types that have been introduced and they are of big help to the people. Along with them, there is another type of credit that has aided a large number of people who have a poor credit score. Even a few years back if an individual had a low credit history then it was quite difficult for him to arrange for finances as the banks and the money lenders, considered them in the high risk category.
However, the scenario has now changed and the financial institutions have understood there are various circumstances under which a person may not be able to make the necessary repayments in time that leads to a poor report. And thus now if you are in need of money, you can get that very easily without much of a hassle.
When in need of money, a person often thinks of taking a credit card because of the lower interest rates. This process can hold good but only for a temporary basis and cannot be used as a permanent solution and on top of that in this way, a person would damage his scores even further. There are even people who consider taking finances from multiple institutions. The problem is that, multiple loans are difficult to manage and it may so happen that the person would end up paying much more than it was thought of.
Therefore a much better alternative is to take finances pertaining to bad credit. These finances are of two types, short term and unsecured. Short term is associated with a loan amount that is required to be repaid within a short time, generally about a year and in this type you also have a lesser interest rate. However, in this case collateral is involved, which means if you fail to repay on time, your collateral would be lost. In the unsecured type no collateral is taken, but in there you are required to pay a higher interest rate, and the reason is quite obvious. Of the two kinds of bad credit loans that are there, you can opt for any one that is best for you.
You can now get the money in different forms like cash or bank transfer and use the money to good effect and to consolidate all your debts. A good feature that has enabled many people to take this type of credit is that one can apply for it online and there is no need to visit the office even for the purpose of verification. To many people applying for credit is very embarrassing and this process helps in a big way, because the person is not required to talk about this subject to anyone and not even the officials.
By filling in a few details like name, address, contact number and proof of income and employment, you are qualified to get the loan. The interest rate generally varies according to the credit score and if your score isn’t too bad then you would get bad credit loans at a very nominal interest rate.
The advantages of a bad credit loan
• You will actually have the money you need the loan for, which you were unlikely to get from another lender.
• It will allow you to consolidate your debts.
• As long as you make the repayments each month you will actually start to improve your credit rating, which in the future will better your chances of being accepted for any other financial products.
• The amount you can borrow is usually quite high and can be spread over relatively long periods.
• Interest rates, although high, are generally lower than payday and guarantor loans.
The disadvantages of a bad credit loan
• Interest rates are likely to be high.
• There are risks involved. If you fail to make the repayments you may face having your house repossessed.
• If you’re not a homeowner, are unemployed or under the age of 18, you won’t be able to get this type of loan.
• If your application for a bad credit loan is turned down your credit history will be damaged even further.
Because rates are far less competitive for this type of loan, it is absolutely essential you do your research to find your cheapest borrowing option. Many websites offer a free smart search loan comparison tool, which enables you to see what deals are available and what the current rates are without signing you up to anything there and then.
Taking out a bad credit loan should be the last resort, for when you really, really have no other options available to you. Firstly, you should consider whether any of the following could help you with your financial difficulties:
It is worth speaking to your bank or building society to see if they can give you an overdraft, or if you already have one, whether they can extend it to cover the amount you need. Some banks offer a 0% interest overdraft on certain amounts or a low interest rate if it is over a certain amount, so it is definitely an option worth exploring. If you have a good relationship with your current financial provider it is also worth speaking to them about whether they can offer a tailor made deal specifically for you. If you don’t ask you don’t get and as long as you completely truthful with them, they will be keen to keep you as a customer.
Credit unions are community co-operatives, which are owned by their members and act as an alternative to banks for those facing financial difficulty. To qualify for a loan from a credit union you must firstly become a member. One of the main benefits of these unions is that because they are not-for-profit organizations, they are incredibly understanding and supportive, as their main purpose is to provide a service to their members and not to make money.
Although it isn’t the easiest job in the world to find a credit card that will accept someone with a bad credit history, believe it or not there are dedicated cards out there for people in such a position. These types of cards are known as ‘bad credit cards’ and although great for those with bad credit ratings they are likely to have very low credit limits and high interest rates.If you have any savings it is worth considering paying down your debt with them, as interest rates on loans are almost always likely to be higher than the interest levels applied to your savings.