Bad credit loans are aimed at subprime borrowers to help tide them over when they are in a tight spot. These loans can also help polish up your credit rating as well if you make all payments on time. It is easy to apply for bad credit loans from direct lenders, but they charge slightly higher interest rates. Bear in mind that the lower the credit scores, the higher the interest rates. It means very bad credit loans with no guarantor and no broker can be even more expensive.
High-interest rates should not deter you from applying for bad credit loans. These loans can be fruitful when it is hard-pressed to get by. Before you apply for these loans, you should understand the pros and cons of each loan:
Advantages of bad credit loans
Bad credit loans have gained wide popularity because these loans are easily accessible when you need money for unforeseen expenses. Here are the advantages of why bad credit loans work better:
1. Same day approval
The best part about these loans is that you can get them without further ado. You just need to fill in the application form and submit your income details. Quick algorithms make a lending decision whether or not to approve your application.
This process is completed within a few minutes, and you receive a sum of money directly in your bank account. As bad credit loans are offered for emergencies, lenders remove unnecessary paperwork to ensure speedy processing.
2. No use restriction
You are absolutely free to use the sum you say you want, provided it is not being used for any illegal activity, including gambling. Whether you need money to fill the gap in your savings for your vacation or you need to get your washer repaired, you can apply for these loans.
Your lender cannot prevent you from using the money the way you want even though you find a column of “the purpose of loan” in the form. This particular simply helps them understand you will not use the money for an illegal activity.
3. Boosts your credit rating
One of the greatest advantages of bad credit loans is that they help boost your credit rating. Since you will keep paying down the debt over a period of time, you will see a significant improvement in your debt.
However, this is possible only if your lender informs credit bureaus of your timely payments. Old prints of previous defaults and missed payments cannot be dropped off your credit report but a new track record of on-time payments will lower their impact on your credit score.
4. Acceptance rate is high
There is no guarantee that you will be accepted because your credit score is just part of your affordability check. If you fail to prove your repaying capacity, of course, no lender will give the green light to your application. However, compared to online lenders, your chances of being approved by direct lenders are high.
Now that you know these loans’ benefits, they are also subject to drawbacks. Here are the downsides of bad credit loans:
1. High-interest rates
A lender will have to bear high risks since you are borrowing money with a poor credit rating. As a rule, a lender will charge very high-interest rates. At the time of taking out these loans, a rule of thumb says you should carefully assess your repaying capacity.
Do not borrow these loans if you think you will not be able to repay them on time. Even if you are close to a fair credit score, the odds are you get money at a higher interest rate than someone with a score lower than yours. It might be due to the fact that you do not ace them out in other factors.
If you have yet to take out these loans, do research so you can choose a lender like LoansForever that provides these loans at competitive interest rates.
2. Payment structure can be complicated
The payment structure varies by the sum of money you borrow. If the amount is small, like £500, you will be liable to pay it off in a lump sum on the due date. It can make it challenging for you to clear the debt if you are struggling with a cash shortage.
Instalment payment plans are only available when you borrow a larger sum that can easily be spread out for at least three months. A lender will hardly agree to accept payments in instalments when the borrowing amount is small.
3. These loans can be risky
Bad credit loans can leave you high and dry. The size of your payments will be larger because of high-interest rates, and the odds are you might end up facing difficulty meeting your recurring expenses. If you do not make the payment, the loan will be rolled over. This will quickly add up the cost due to late payment fees and interest penalties.
And if you compromise with your recurring expenses, you will end up borrowing for them later on. This will result in adding up your loan. Whatever way you follow, you will see yourself landed in hot water. The risks of using these loans are very high, especially if you are not concerned about your capacity to repay.
The bottom line
Bad credit loans can be very beneficial to tick over when your budget is not strong enough. These loans can also help improve your credit rating if you stick to keep up with payments. However, these loans involve high risk.
Financial experts suggest that you apply for these loans only when it is urgent and you cannot put it off. However, if it is about filling the gap in your savings for, say, vacation, you should put the brakes on your ideas and stress on stashing away money.
No loan is inexpensive and they are no fun. Borrow money only when you are in dire need of money and you can repay the debt.