Your success in finding credit lenders that give personal loans even to those with bad credit depends on how much money you need to borrow.
Today it is almost impossible to obtain a mortgage loan or a standard credit card if you have a damaged credit file.
If you need to buy a car with bad credit, you may have to confine your search to those car dealerships that advertise “bad credit accepted”.
If you are accustomed to obtaining standard loans you need to adjust your expectations. When you have good credit, getting a loan is not difficult.
Personal loans are based on several criteria the lender uses to make a pre-judgment about your ability to repay the loan in a timely manner. One important factor is your income and another is the debt to income ratio you carry.
You must be able to show a stable income sufficient to make the loan payments. Debt to income ratio is just what it sounds like. You may have a good income but if monthly debt payments are more than 35% of that income you are not a good loan risk.
Personal Loans for Bad Credit
Companies that offer bad credit loans will not have the same terms for interest and repayment as banks that provide standard loans.
Bad credit loans are considered sub-prime loans. They carry a much higher risk of non-payment for the lender and as a result, the person taking the loan will pay higher fees for the privilege.
Perhaps the best known companies that give personal loans for bad credit are the payday loan and title loan companies. These are short term personal loans that require no credit check.
A payday loan is for a period of two to three weeks in most states. This is a personal loan that allows you to keep the power on if the electric bill is due before your next payday arrives.
Although payday loans have received many complaints and are frowned on by all financial experts, these loans do serve a useful purpose for consumers without credit to rely on.
If you live on cash from paycheck to paycheck, you know there are times when an emergency can use up all of the money you have available. A sick child needs expensive medication or an injured pet requires emergency care at the vet.
In one day, the money you set aside for groceries and gas for the next two weeks is gone. A payday loan can bridge that gap by providing $100-500 of cash immediately.
You write a check to the loan company and have the choice of repaying the loan in person or advising the lender to deposit the check on the next scheduled payday.
Title loans are similar but allow consumers more time to pay. A title loan is cash loaned on the value of a vehicle such as a car, truck or motorcycle. You retain use of the vehicle while the lender holds the title until the loan is paid.
You will have months to pay off the loan with regular payments and many title loan companies will renew the loan for another period of time in exchange for the consumer paying the interest due.
Disadvantages
The companies offering loans to consumers with damaged creit do not hand out money because they like you. They run a business where profit must be made and they take a bigger risk than traditional banks that require good credit for a personal loan.
You will pay excessive interest rates for the privilege of borrowing a few hundred dollars. A $300 payday loan that must be repaid in three weeks will cost $365 to repay. The $65 is interest.
In some cases, the high interest may be worth it to you if restoring power or gas or water with attendant deposits would cost more than $65. If you are working to rebuild your credit, it’s worth spending $65 to make your mortgage payment or car payment on time during a difficult month.
Summary
The personal loans for bad credit usually issue short terms loans based on your job and income without concern about your credit rating.
Although this type of loan can be useful it can also be addictive and many who take payday loans find themselves in a cycle of borrowing and repaying on a regular basis.
The loans are short term and the interest rates extremely high. There may be times when you need personal loans for bad credit but it’s best to avoid these loans if you can.
