As of last year, it was reported that 18% of Americans have bad credit scores and will have to turn to loans for bad credit instead of more traditional options like credit cards or home equity lines of credit. While taking out loans for bad credit can be one way to solve your financial woes in the short term, there are several things you should know before pursuing this option to ensure the best possible outcome. Here are five things you should know before you take out loans for bad credit.
1: Borrow Only What You Need
It’s easy to get swept up in the excitement of buying something you want, but before you take out a loan, ask yourself if you can afford it. Be sure to consider both the cost of the item and any associated fees (such as credit card interest or late payment fees) when calculating the total price. If your desired purchase costs more than what you’re able to pay for with cash in hand, don’t take out a loan just because it will increase your credit score. There are many benefits of having a strong credit score, but that doesn’t mean it’s worth sacrificing your financial security.
2: Look For Lenders With Reasonable Interest Rates
If you have bad credit and are looking for a company that will extend loans to you, it’s important to understand what type of interest rates you’ll be paying. Interest rates are set by the lenders, not customers. Some companies might offer low-interest rates while others can charge higher rates. It’s important to research the various lenders before taking out a loan because some creditors might offer better deals than others. Lenders may also differ in terms of which types of debts they’re willing to lend money on.
However, no matter which lender you choose, make sure they disclose their rate as well as all other associated fees upfront so there aren’t any surprises later on. The more information you’re given upfront, the more likely you are to make an informed decision about whether or not to take out a loan from them.
3: Don’t Use Credit Cards To Finance Your New Loan
Credit cards are an easy way to finance a new loan. However, you’ll end up paying a lot more in interest if you do it this way. Credit card rates can be as high as 30% APR (annual percentage rate) or even higher! Instead of using your credit card, think about getting a personal loan from a bank or credit union.
Personal loans can help you get funds without the high- interest rates and fees that come with credit cards. They also have fixed monthly payments that make it easier to budget for your expenses each month.
personal loans don’t require collateral like traditional loans do- so if you default on the payment they’re not able to take your car or house away from you!
4: If A Lender Asks You To Borrow More Than You Can Afford, Walk Away From The Deal
When the situation gets tougher and you need to borrow money to stay afloat, it’s easy to be lured by the seemingly low-interest rates. But remember that those rates will quickly skyrocket if you’re unable to make timely payments. Unless your credit is already in good shape, a loan with high-interest rates can put you deep in debt and send your credit score plummeting as well. It might seem like a risk worth taking when you’re desperate for cash, but there are other ways of solving short-term cash problems. Check out these 3 things you should know before taking out loans for bad credit:
1) What kind of terms does the lender offer? Ask about how much time you have to pay back the loan and what kinds of penalties exist for not making payments on time.
2) What are the costs? There are always costs associated with borrowing money, so ask about the fees they charge before agreeing to take out a loan. Some companies charge application fees while others tack on interest rates or monthly service charges onto your account balance each month.
3) How long will this solution last me?
5: Find A Loan Repayment Program That Works With Your Budget
There are many ways to get a loan with bad credit. Most lenders will offer you loans with higher interest rates and fees than those for people who have perfect or near-perfect credit. But if you can’t afford your monthly payments, there are other options available to help make repayment easier. Interest-only payments are a popular way for people with bad credit to start building their credit score again by making smaller payments on the principal balance of the loan while not paying interest on that part of the debt. This also helps individuals repay their loans faster, saving money in interest charges. Some lenders will allow borrowers to defer principal and/or interest payments until they can afford them, as long as they continue making at least the minimum payment each month.