Bad credit loans are for individuals with poor credit ratings. There are many lenders who will give credit to those with poor credit scores. However, do not be deceived by the ease of getting free money, you need to be careful about which lender you borrow from because the payback terms can be prohibitive.
So what should you ask yourself before applying for a bad credit loan?
How much interest will you be paying?
While it is true that anyone who is applying for a loan should ask this question, those applying for bad credit loans need to be particularly watchful about this. This is because interest rates on bad credit loans are very high and will vary depending on the lender.
Choosing the wrong lender can end up costing you thousands because of the interest you will have to pay.
Does the loan amortize?
Be very clear about whether the loan will amortize or not. What this generally means is that you have to be very clear about the scheduling of the payments. In the initial stages of loan repayment, most of the amount goes towards the interest, not the principal amount. Ask your lender to explain to you how the amortization schedule will work. You do not want to pay money for a long period of time only to realize that all the payments are going towards the interest and not the principal amount.
Amortizing loans accumulate interest over time meaning that paying off your debt earlier can save you a lot of money overall. The payments you make should go towards both the principal and the interest so that you are able to clear your loan faster.
Can you afford the payments?
Bad credit loans are expensive due to the high interest and you’ll need to factor this in when you are making a payment schedule. If you realize that your income is not able to cover the loans then you could get into trouble. You will, therefore, have to tighten your belt and think about your spending, so that you are able to allocate an amount towards the payment of the loan. While you may want to consider a short term period for bad credit loans, the reality is that longer loan periods will allow you to make smaller payments thus allowing you to plan yourself better.
What are other people saying?
Make sure you’re dealing with a lender who is credible and has good reviews. You can ask the lender to give you references; you can also use the internet to check up on the lender because you’ll be able to read reviews from other customers.
Pay close attention to complaints raised by customers and see how the company responds to these issues. You do not want to deal with a company that seems to ignore customer complaints and one which has poor customer reviews.
Do not rush into taking a bad credit loan. While your financial situation may make it seem like you really need to get a quick way out of the situation you’re facing, you need to be careful about why you are taking the loan, how you’ll make the payments, and what kind of lender you are dealing with.