Having a bad credit rating doesn’t always mean that you can’t secure credit. In fact, it often means that it’s a lot more difficult to secure a credit loan at a competitive price. This doesn’t actually mean that all unsecured credit loans are only for people that have a good credit rating. It just means that bad credit loans can typically be a little bit more expensive for those with bad credit. With this being said, some lenders take a more relaxed approach when it comes to credit ratings. They are more interested in looking at affordability which will include a breakdown of your current financial situation instead of your past.
There are also lenders that offer bad credit payday loans. However, with these type of loans, you are required to pay them back within a small time period which usually the next time you get paid from your employer. There are mixed opinions about whether bad credit loans are actually a good or bad thing. So, we decided to create this short, but insight article to help clarify the pros and cons of taking one out.
Why Do People Take Out Bad Credit Loans?
A bad credit loan can be a handy resource for someone who need access to funds quickly, but don’t have a good credit rating. The reasons that people choose to take out this type of loan generally depends on their personal circumstances and financial situation. However, these are the most common reasons –
They Don’t Have a Guarantor
Not having someone to act as a guarantor can often lead people to opt for a bad credit loan instead. Guarantor loans are actually a better option than bad credit loans as they can often come with lower interest rates. But, without somebody to countersign the loan, then you won’t be able to secure one.
It’s Their Only Option
Some people take out bad credit loans when they really don’t have any other option. When you suffer from a bad credit rating, traditional lenders will see you as high risk and be cautious to work with you in any capacity whatsoever. So, when if those with bad credit find themselves in this situation then a bad credit loan will be the only option they have.
They Don’t Have Enough Time to Build Up Their Credit Score
If you have suffered from a bad credit rating for quite some time, then it’s going to take a while for you to build it back up again. When this is the case, a bad credit loan is actually a really good resource to use. Because, if you make all of the repayments on time then this will, in fact, improve your credit score.
What Are The Advantages of Bad Credit Loans?
The advantages of bad credit loans vary as they depend on people’s individual circumstances. However, there are some more common advantages of taking out this type of loan, of which we are now going to discuss.
Applications Are Approved Very Quickly
Not only are the more common types of loans more difficult to secure, but they can also take a considerable amount of time to get an approval. Bad credit loan approval rates are a lot higher and also take a much shorter time to secure. Making them an attractive option for those seeking a much-needed cash injection.
They Help to Build Up a Bad Credit Rating
The reason that people struggle to secure a conventional loan in the first place is because of their bad credit rating. But, bad credit loans give them the opportunity to start making a positive impact on their credit score. If you make your repayments on time, then this helps you to improve your score and put you in a much stronger financial position.
You Can Apply Without Worrying About Your Credit History
This is probably one of the best things about applying for a bad credit loan. You can apply without worrying about your credit history as most bad credit lenders won’t even bother looking at it properly. They will focus more on your affordability and whether you will be able to pay off the loan in the future.
Borrowers Can Be Approved For Larger Sums of Cash
Another advantage of bad credit loans is that you can be approved in a shorter amount of time for a larger amount of money. However, you need to be aware that the more money you borrow, the more interest you will need to pay back.
What Are The Disadvantages of Bad Credit Loans?
As with most things, when there are advantages there is always going to be disadvantages. And, when it comes to bad credit loans. There isn’t actually many disadvantages. Take a look below.
The Interest Rates Are Higher
Those who offer people with a bad credit history will always charge a higher interest rate compared to conventional lenders. This is because the risk is much higher.
They Can Put You In A Vicious Cycle if You Are Not Careful
You must be extremely careful when taking out a bad credit loan, this is simply because you could fall into a vicious cycle that doesn’t actually get you out of debt. Only ever take out a bad credit loan if you know for sure that you can make the repayments.
There Are Many Bad Lenders
Just like any other conventional loan product, there are scams out there. And, if you are not careful then you could end up being in bigger debt than you was in the first place. With this being said, we advise you to always do as much research as you possibly can before applying for a loan and always try to find some testimonials to see what other people are saying about the lender.