Do you find yourself in the situation where your credit is less than perfect? In other words, do you struggle with bad credit and you fear that getting a personal loan may come with some risks?
This article will prove to be more than capable of answering your questions on the risks. So, let’s see what is fact and what is fiction.
Risk no. 1 – Higher rates for bad credit loans
This one is pretty obvious. When you are going to ask for bad credit loans, it’s pretty standard that the person or company that would offer you the loan has to take some measures for the risk. What risk? Well, put yourself in the other guy’s shoes. If a person with bad credit comes and asks for a loan, then you would have to get some guarantees in order to get the money back, right? That’s why you can find some higher rates and terms compared to what you have envisioned you would pay. So, you should take a careful look at the fine print to know what you would sign.
What seems like a low rate at the beginning may turn into a higher one after some time. Of course, it depends on the loaned sum because, usually, fees are higher if the loaned amount is higher as well.
Risk no. 2 – You may be offered a higher amount
There are cases when bad credit loans are too much to handle. That’s because of several personal loan companies that are known for preying upon customers who come in with a bad history of paying back amounts, racking up higher fees and penalties, thus getting the bad credit score. Other companies are literally fishing for people in these delicate situations. Actually, you may be offered bad credit loans and find yourself in the situation where you can’t possibly pay back. You would face this situation because you would have a higher amount than desired, leaving you in a long-term relationship with someone that wants to make a profit on your back.
That’s why you should be careful about how much you want to borrow.
Risk no. 3 – Be careful if you’re asked for an “advance fee”
Many people who have bad credit, are tempted to take advance-fee loans. But in most of these cases, something is up, definitely. Because legitimate lenders always care about the borrower’s credit history, especially when we are talking about bad credit loans. Scammers will tell you exactly what you want to hear in order to relax and ease your mind. That’s when you pay that “advance fee” that they will take as they disappear into the mist.
This type of scam is becoming more and more common. That’s why you should always check the potential lender carefully.
Risk no. 4 – Short repayment terms
When it comes to payday lenders, bad credit loans can become trickier. Because you would have a short period to pay back what you borrowed, you can repay everything (additional fees and interest included) in just two weeks, for example. If you can’t make due, you will have to extend that loan. Of course, this will come with another costly tax and you may become trapped. That’s when most people fall into a cycle of debt.
This means that you will be extending your loan forever and you won’t be capable of paying it back.
Risk no. 5 – Taking your car as collateral
Among the various types of bad credit loans, you may find the title loan. This will require giving up your vehicle’s title to the lending company in order to get a sum of money equal to your car’s worth (its appraised value). If you find yourself in the situation where you aren’t able to pay back, then the lender will take your car. Because some of these lenders come with rates and terms that can be as high as those from payday lenders, you may face a great risk of losing your car.
Even if you are sure that you are able to repay all of it, you should look at other types of loans that wouldn’t require your precious car as a guarantee.
Risk no. 6 – Hidden terms in the contract
Many people have fallen for this. Unfortunately, there are plenty of people who want to make a profit on other’s people troubles. And in this case, there are lenders that don’t tell you everything about your future loan. Be it a hidden fee or other similar scams, you can find all sorts of problems if you don’t read the contract carefully. That’s why you should be on a constant lookout when you want to borrow some money.
These are the main risks associated with taking bad credit loans. If you have any other ideas and tips, please let us know in the comment section below or contact us to discuss further.