If you have a bad credit rating, it can be difficult to apply for finance, loans or other lines of credit. However, loans for people with bad credit are available for consumers who need cash and can’t go through the usual channels to apply for a loan.
But before you run off to apply for a bad credit loan, you need to be aware of both the advantages and disadvantages of these types of loans:
The greatest benefits of loans for people with bad credit is that they are fast and easy to apply for. The application process is normally online and doesn’t require reams of paperwork and documentation to be approved. They only require your contact details, proof of income and a banking details to transfer the necessary funds.
You also don’t have to worry about a bad credit record or history. Although some bad credit loan providers may still run a credit check, this is only to assess your personal risk and should not affect the loan approval process. In most cases, bad credit loans are approved within 24 hours of application.
2. The Disadvantages
Unfortunately, the disadvantages are far more numerous than the benefits of applying for loans for people with bad credit. These include:
– High interest rates which means that you are paying much more for the loan that you would through regular financial providers.
– Additional charges, such as admin fees, services fees and other expenses, are in excess of those charged by traditional loan providers.
– The repayment term or settlement period is short – normally 3 to 6 months with a maximum period of a year.
– The loan amounts on offer are often relatively small.
– Loans to debtors who have been blacklisted may not be approved.
– Bad credit loans often result in a debt trap where lenders are forced to take out additional loans or continuously extend the loan period in order to afford the repayments.
– Most bad credit loan providers do not adhere to legislated regulations. This means that you will have no legal recourse in the event that you are unable to repay the loan amount for any reason whatsoever.
– If you make late payments, additional interest and fees will accrue.
– If you default on your payments, the loan provider will attach your belongings, harass you and take any other means to recover their money.
– Defaulting or making late payments may result in legal action.
– An inability to meet your financial obligation on time and in full will negatively affect your credit record.
But this does not mean that bad credit loans are necessarily bad for you. They have their place and can be very beneficial when used correctly.
However, it is always advisable to approach your personal bank or other types of lending facilities to apply for a regular loan first. Some regular lenders may only require a type of security before approving a loan amount which means you can eliminate the risks and disadvantages of applying for a loan for bad credit.