What is Different about Bad Credit Loans?
These days, banks offer a range of products and services designed to meet the needs and wants of all their customers. Many branches will have a different advisors and customer relations managers who are assigned to the different customers of the bank. So for example, there will be a student and graduate advisor who will begin to build a personal relationship with these customers, then there will be a small business advisor who will be trained and up to date on the needs of business, and they may also have a corporate manager who will liaise and meet the needs of the larger corporate customers.
Banks and General Loans
It is the exact same story with bank loans. There are loans targeted at all kinds of borrowers. All borrowers will have different needs and requirements from credit. Some will need short term credit with a lot of flexibility and for that they will be willing to pay relatively high interest rates. Then there will be much longer and less flexible loans such as a mortgage. While this will generally be for a much larger amount, it will be far less flexible with the term of the loan and the interest rates locked for years into the future. If you wish to alter any of these terms, such as repay the loan early, then you will probably be charged extra fees or fines. However, for this reduction in flexibility, and the extra certainty that the bank will get as a result, you will get your mortgage at a far lower rate of interest than shorter forms of credit.
The Bad Credit Loan
One class of loans that will always charge relatively high rates of interest is the bad credit loan. This reflects the added risk that banks are taking in making this loan. Generally speaking, all bank lending will be carried out on the basis of credit ratings. Virtually all adults these days will have a file on a computer database that will record all sorts of important details that banks can use to assess the likelihood of you repaying the loan. If the information they have puts you at a low risk of defaulting, then they will be very willing to lend you money and will offer you favourable terms. If however, your credit rating shows that you are more at risk of failing to meet your obligations then banks will be far less likely to wish to lend to you, after all, their sole concern is with being repaid.
Do You Have A Poor Credit History?
Therefore, if you are considered by banks and other lenders as having bad credit, then they will be less than enthusiastic to lend to you. If they are willing to lend to those with bad credit, then they will have specifically set up bad credit loans with terms and rates of interest that will match the increased risk that they are taking in making the loan.
Terms that are likely to accompany bad credit loans will be less attractive for borrowers, but given that lenders will not otherwise be willing to make the loan, and also the fact that the borrower is unlikely to have too many alternative sources of credit, the terms will probably be accepted if the loan is badly needed.
You Should Have Loan Security
The most common feature of bad credit loans is that security will be needed. You may have noticed in advertisements on the TV for bad credit loans that are open to all borrowers no matter what their credit history. Well these advertisements will almost always state that they are open only to home owners. The reason is that the loan will have to be secured over the home. It is for this reason that you should be very careful about taking out bad credit loans. Securing credit over an asset gives the lender a direct right to take the asset and sell it should the borrower fail to keep up with repayments. What this means is that if you have secured the loan over your home, then your home will be a risk of repossession if you are unable to meet your obligations under the loan. For most people, this will be a risk that they cannot afford to lose so if you are in any way worried about your ability to repay the loan, then you should avoid taking out any kind of secured loans.
How Much Are These Bad Credit Loans?
Another common feature of bad credit loans will be high interest rates. As has been previously stated, providing bad credit loans represents an increased risk for lenders and they will seek to cover this risk by charging higher rates. As well as higher interest rates, the loan will also have strict repayment rules with the result that should you ever miss a payment, it is likely that the entire balance will fall due and you will have to come up with the funds.
Bad credit loans are more expensive and stricter than other forms of credit and you should consider carefully before agreeing to take one on.
More Info:
- Bad Credit Loans - Article explaining what a bad credit loan is
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