Loans for borrowers with a poor credit history are undoubtedly less advantageous than those for borrowers with great credit. Poor credit borrowers pose more of a hazard to lenders who look to protect themselves from the risk of non-payment. In spite of the risk, poor credit borrowers offer a large business opportunity to lenders.
This means that because it is such a highly competitive market place, you don’t have to take the first bad credit loan that comes along, but can shop around for the right deal for your circumstances.
Lenders offset risk with bad credit borrowers in various ways. Most lenders require higher rates, variable rates, or additional fees with more risky borrowers, in order to offset the risk of potential loss. Many loan options for poor credit borrowers include secured property. Personal loans, cash advance loans, and other loan products often required secured property in exchange for reasonable rates and larger loan amounts to those who have a poor credit history.
There are loan options out there
If borrowers are willing to accept higher interest rates and / or take a secured loan, there are options, even with poor credit. These options range greatly in terms of loan amounts, repayment terms, and security requirements. The key for borrowers with bad credit is to be wary of questionable lending practices that some unscrupulous lenders employ to take advantage of desperate consumers. These include hidden fees, up front application costs, verbal promises not honoured, or common fine print tactics to increase fees and costs to unknowing borrowers. Many lenders throw in early repayment penalties that knock borrowers who pay off loan balances early.
Virtually all loan products have bad credit options designed specifically for borrowers with a poor credit history. Second charges that are based on additional liens against property owners are used often by poor credit borrowers. With this type of secured loan, borrowers can often get rates that are much more reasonable than can be found with unsecured personal loans or credit cards. Secured personal loans are another similar loan option of varying amounts that rely on secured property.
Short term borrowing can be very costly
Short-term loan options also exist for bad credit borrowers. Logbook loans are common, as are pay day advance loans. These are designed specifically for bad credit borrowers. However, the interest rates and / or upfront fees they charge can be quite alarming.
Because Logbook loans are easy to apply for and often include instant approval, and no credit check, they can be popular for bad credit borrowers. These loans are secured by personal property, such as a vehicle that has little or no other financing. Repayment periods are short – typically weeks or months. Capital and interest payments are usually made weekly or semi-monthly until the loan amount is repaid. However, these and pay day type loans have high costs and should only be used for truly needed cash flow, not necessarily for discretionary purposes.
Bad credit borrowers need to be cautious and research thoroughly when shopping for loans. While credible lenders offer good products for borrowers, some creditors do sadly take advantage of the vulnerability of those with poor credit.
Finally, before you sign up, ensure you do the following:
- compare all product features, read the fine print, watch for hidden fees or early payment penalties.
- calculate just how much the loan will cost you over its full term and then decide if it is really worth it.
- finally, make sure that you can comfortably meet the monthly loan repayments. Failure to do so will further damage your credit rating, making it even harder for you to borrow in the future and then, with a lot less options.
