When not to get a bad credit loan
- By James Belle
- Published 04/9/2008
- Business
- Unrated
James Belle
J. Belle writes about personal finance, he has written tips and guides on loans and credit cards amongst other areas.
View all articles by James BelleWhen not to get a bad credit loan
Anyone of legal age is able to apply to get a loan, financial institutions however, want to be able to separate trustworthy borrowers from potential bad borrowers, therefore they use a scoring system known as a credit rating.
Those that turn out to have a bad credit rating have fewer options, which cost more in interest repayments and have tougher requirements.
There are circumstances where a loan is not always the best option however, below are circumstances in which you shouldn’t get a bad credit loan.
Before having some background information
There is a misconception that you either have a good credit rating or a bad one, as a result many people once rejected for a loan application, assume their credit rating is appalling therefore can only turn to bad credit lenders.
In reality, it is possible that you miss out on a good credit score by just a few points, therefore you’d have a moderate credit rating. Lenders never reveal the criteria they use to make decisions, but what is known is that every lender scores applicants differently; some lenders will accept moderate credit applicants at good rates if you meet some of their other criteria.
Before you decide on getting a
bad credit loan, be sure to check your credit rating; this way you’d know whether you have no chance of qualifying for a loan at better rates. If you find that you have a moderate credit rating, it is best to apply through a price comparison website, they will compare offers from multiple lenders, making it easier for you.
When other means would be more suitable
If you aim to borrow a small amount of money or plan to pay it back fairly quickly, there are other more suitable means;
Credit cards for example, are much easier to get approved for than bad credit loans, even if you only get a small credit limit, it will be available on an ongoing basis; what you pay back, you may borrow again if you need it.
Payday loans are another example; these are more convenient than bad credit loans, you could complete the process and get the money within 24hours, also, you pay them off within a month of borrowing the money therefore end up costing you less overall.
If you’re a home owner, it will help bring your interest rate down by a few points if you secure the loan rather than a bad credit unsecured loan. Securing the loan on your home is risky but it gives the lender some comfort and thus save you some money.
Those that turn out to have a bad credit rating have fewer options, which cost more in interest repayments and have tougher requirements.
There are circumstances where a loan is not always the best option however, below are circumstances in which you shouldn’t get a bad credit loan.
Before having some background information
There is a misconception that you either have a good credit rating or a bad one, as a result many people once rejected for a loan application, assume their credit rating is appalling therefore can only turn to bad credit lenders.
In reality, it is possible that you miss out on a good credit score by just a few points, therefore you’d have a moderate credit rating. Lenders never reveal the criteria they use to make decisions, but what is known is that every lender scores applicants differently; some lenders will accept moderate credit applicants at good rates if you meet some of their other criteria.
Before you decide on getting a
When other means would be more suitable
If you aim to borrow a small amount of money or plan to pay it back fairly quickly, there are other more suitable means;
Credit cards for example, are much easier to get approved for than bad credit loans, even if you only get a small credit limit, it will be available on an ongoing basis; what you pay back, you may borrow again if you need it.
Payday loans are another example; these are more convenient than bad credit loans, you could complete the process and get the money within 24hours, also, you pay them off within a month of borrowing the money therefore end up costing you less overall.
If you’re a home owner, it will help bring your interest rate down by a few points if you secure the loan rather than a bad credit unsecured loan. Securing the loan on your home is risky but it gives the lender some comfort and thus save you some money.