Even those with the best finances in the world will have seen adverts that suggest they have bad credit and that Company Y is willing to give them a loan, unless they are inexperienced in the world of finances they will know that accepting a bad credit loan from Company Y is a very bad idea.
However if you really need money you could think to yourself if there fool enough to offer the money despite your money problems then you will take it and ask questions later. Remember always ask the questions first. Below are just a few of the common bad credit loans and why you are best to stay right away!
Automobile loans for bad credit.
If the time to pay off a car loan is more than five years and the interest rate is in double figures this is a bad idea.
Katie Moore, from GreenPath Debt Solutions, a nonprofit organization based in Detroit that helps consumers with debt and bankruptcy, stated that she has recently worked with a woman who took a loan to finance a vehicle. The monthly payment was $300 for a used car costing $15000, the woman felt that the repayments were manageable however the interest rate was 18% and she had to make 84 payments. On taking the loan she was told that by making the payments for the next two years on time and she could then refinance.
The vehicle will depreciate quicker than the loan and it would be almost impossible to refinance even if the payment history was good, because the car would be worth less than owed. If the woman doesn’t refinance and simply pays for 84 months she will have paid $26,000 for the car.
Whilst illegal in some states the idea of a Payday loan is with proof of income lenders will offer you a small loan amount from $100 – $1,000 with interest. However if you take a loan for $400 just two weeks later could see you owing $460! If this is the case if after two weeks you owe $460 and you get paid $600 but owe $500 in bills. Usually the borrower will pay the lender and then try to stretch the remainder for the month, however inevitably they find themselves borrowing again before the month is out and the cycle of debt worsens.
Auto title loans
Auto title loans are an accident waiting to happen. These loans are advertised in storefronts and online. The consumer is given a loan sometimes this is several thousand dollars with a promise to give them your car if you cannot pay the loan back. One family was paying 89% interest and had almost paid off the loan but defaulted and lost the car.
Mobile home loans
For those unable to get a mortgage this is a consideration but one that needs plenty of thought. A certified credit counselor with ClearPoint, stated that nearly all mobile home loans are bad loans, with interest as high as 19% and terms of 20 years, making it far more expensive that a 30 year loan with a standard interest rate, which is what you would have if they were to purchase a house.
Quick personal loans to people with bad credit
Many subprime lenders lend money provided the consumer passes a quick credit check. They like to lend to those that may have intermittent to bad credit but with a good chance of paying the loan back, as they so want to make money.
McClary spent years working for two subprime lenders and was quick to point out that they are out to make a lot of money. Where a person may borrow $5,000 with interest it makes $5,800 meaning the interest is more than borrowed. She explained that she and other staff members were encouraged to recommend that the consumer purchase credit life insurance and credit disability insurance, designed to pay off the debt if they died or become disabled. This increased the profit on the loan and raised the 36% interest to a huge 60%. These types of insurance are not looking out for the consumer, just the lender.
If you are looking for a bad credit loan get as much information as you can about your credit history even if it is bad before applying. The lender is not going to educate you simply sell you the product. If you take out a bad credit loan following bankruptcy lenders know you owe nothing and probably have the means to pay. One man took out a bad credit loan following his bankruptcy and was approved for an amount up to 25% at 36% APR for 5 – 7 years, he couldn’t make the payments or declare bankruptcy as he had recently filed. He was ruined financially.
Bad credit loans that are supposedly to help the poor don’t help them, they simply make them poorer.