Bad Credit Loans:
It is fair to say that bad credit loans divide opinion. Whilst loans such as payday loans, doorstep loans and logbook loans continue to take a pummeling from the press, alternatives such as guarantor loans are looked upon in a much brighter light.
One thing that cannot be argued is their popularity and if they are currently more popular than ever, can loans for bad credit really be the root of all evil?
Much of the bad publicity surrounding bad credit loans stems from the perception that lenders target borrowers who are in a desperate financial situation. Whilst there may be at least some truth to this, it must also be remembered that without these options, many people in need of extra money would be left with no options at all.
What about Payday Loans?
Payday loans are the highest profile of all loans for bad credit and are widely criticized because of their exceptionally high APRs (up to 5000% in some cases).
These loans have been designed to offer short term lending options to borrowers who have few other alternatives. Easy to obtain and expensive to repay, they polarize opinion in the financial community.
Because payday loans typically charge more for a month than credit cards do for a year they should obviously only be used in moderation.
They should only be used responsibly and should never be used as a regular method of filling gaps between incoming and outgoings in a month. If you find yourself in a position where this is happening, there is a fundamental issue with your financial planning which must be addressed.
Rule of Thumb
As a rule of thumb, to avoid facing payday loan problems, if you know that you will struggle to repay the loan on time, you simply should not be taking it out in the first place.
No matter how desperate for credit you are, failure to repay the loan in full and on time is a huge step towards being trapped in the payday loan cycle – taking out another loan to repay the previous one – a sure fire way to major financial problems.
It is not unknown for some unscrupulous lenders to actively encourage their customers to roll over their payments from month to month and then charge them for the privilege.
Beware the Addiction
To make the most out of a payday loan, you must be a strong willed person. Even if you make the repayments on time, the company will know you are a good trustworthy customer and this often leads to a flood of enticing new offers.
Payday loan companies, though they may lay traps for you, have a credit license. So if things go wrong, you have some limited room for recourse.
What about Doorstep Loans?
Doorstep Loans, also sometimes known as home credit are loans which allow you to borrow money and the lender calls at your home to collect the repayments. The loans are usually for smaller amounts and you will be charged a high rate of interest for borrowing in this way.
This is actually a very traditional albeit expensive form of credit. Even though the APR (the amount of interest that’s charged) is likely to be far less than a payday loan, between approximately 150% and 600%, because the repayment period will be much longer, the payable interest often works out to be approximately the same.
For further information regarding Doorstep Loans –
In an increasingly impersonal world, many loans can now be arranged with actually speaking to any directly, this type of loan gives customers the chance to discuss their credit needs and financial circumstances with an experienced agent of the lender in person on a regular basis.
This can prove to be very helpful for some people as it allows them to stay in control of their repayments at all times in the knowledge that the agent knows and understands their financial circumstances and will call personally to collect their payments.
What about Logbook Loans?
Logbook loans are a form of bad credit loans which is secured against the car of the borrower (assuming they actually own it of course!).
The major risk associated with this type of loan is that because you have effectively offered your car as security against the balance of the loan, if you miss payments, the lender may repossess your car.
For more information on Logbook Loans – http://en.wikipedia.org/wiki/Logbook_loans
How do they Work?
Although the process may vary slightly from lender to lender, typically logbook loans work by signing a ‘bill of sale’ agreement with the lender to transfer ownership of the car to them. The lender will then retain the registration documents meaning that essentially, they will own the car until the loan has been fully repaid.
High Interest Rate
Because of the high interest rate associated with logbook loans, generally between 170% and 500% they can prove to be a fairly expensive method of borrowing money.
They can be a risky way to borrow money because if you can’t afford to make your payments, the lender will repossess the car and sell it at auction. The lender will not need to obtain a court order to do this.
If the vehicle sells for less than the amount you owe on the loan, you will still be liable for any outstanding balance on the debt.
Have You Heard of a Guarantor Loan?
Guarantor loans are possibly the least maligned of all bad credit loans, due to the fact that they have a much lower APR of generally around 50%.
Similar to the loans mentioned above in the fact that they are designed for anyone with a poor credit rating, these work differently due to the fact that the borrower must find someone to co-sign the loan agreement with them agreeing to make the repayments should the borrower fail to do so.
This much reduces the risk to the lender and as such, they offer the loan at a much cheaper rate.
These unsecured personal loans are available from a wide range of lenders including.
Regardless of the type of loans for bad credit that you choose, if you deal with them correctly and as intended they can prove to be highly beneficial. However if you begin to fall behind on payments or skip payments altogether they will almost certainly prove to be very unfriendly.
Responsibility is the key word and if you borrower in a responsible way, you will be able to make the most out of any bad credit loans.