Loans refer to money lent to an individual or an institution that requires it currently at an interest. The person who lends loans are known as creditors and the person that opts for loans are known as debtors. Borrowing and lending has been a part of the society since ages, initially this system of purchasing or borrowing was done amongst friends and family but later it slowly escalated along with the expansion of cities and settlement. Previously it involved the exchange of seeds and later this system involved the exchange of currency.
Bad credit loan comes under the category of a personal loan. It is offered to individuals with a bad credit score or history.
An individual can have a bad credit score for various reasons:
- If he\she defaults on any prior payments or loans.
- Making late payments.
- Filing for bankruptcy.
Most banks refuse lending money to risky borrowers or borrowers with a bad credit score hence bad credit loans exist to help such borrowers. It is advised that an individual should avoid bad credit loans considering the risk it involves. The rate of interests on bad credit loans are generally high owing to the bad reputation the loan seeker has. Therefore, an individual should opt for such a loan only in dire situations.
When should a person apply for bad credit loans?
- When all average loan applications have been rejected and you have no other option to deal with an ongoing crisis or emergency.
- If you are financially stable enough to pay the loans on time and you wish to rebuild your credit score through the bad credit loan.
- When you have no guarantor with a strong score that can back you up with the debt.
Bad credit loan is a double-edged sword; it is a useful financial tool but can be unfavourable as well. Although the credit history is mostly overlooked and the approval percentage for bad credit loans are higher than that of traditional loans, the application may be rejected if the credit score is extremely poor. Through bad credit loans you can borrow a large sum of money and re-establish your credit score but the interest rates are lofty. It does pull you out of a financial crisis quickly but in the long run could burden you even more.