While many attribute the popularity of bad credit loans to recent economic slowdown that caused a massive number of defaults, foreclosures, and bankruptcies, it is not so. Bad credit loans have always been highly sought-after, as lending market for poor credit grades is very small, and demand for loans and lines of credit always surpassed the supply. Increased demand along with high risk that bad credit borrowers represent result in significant overall borrowing cost. Therefore, a decision whether to take out a bad credit loan or not should be carefully weighted by the borrower. Below are some lending industry insights that may help you to make an educated decision and help to avoid extra costs when taking out bad credit loans.
Multiple Inquiries Ruin Your Credit
Attempts of some bad credit borrowers to obtain a loan may be compared to efforts of trying to get through a concrete wall – a lot of effort with little result and an opportunity of serious damages. Once you apply for a loan, a background investigation is conducted to include identity check and credit check. After your identity is verified and your credit scores are obtained, a lender makes a decision whether to pre-approve you for a loan or not. If you are pre-approved, an examination of your income and expenses follows in order to determine how much debt you will be able to manage without overextending yourself. bad credit loans guaranteed approval
Most people do not realize that every background investigation costs them few points of their credit score. The way credit scoring works, inquiries generally account for roughly 10% of your score composition, and every inquiry made by a prospective borrower counts against you. Very few people know that pulling their own credit report does not damage their credit score. Furthermore, fewer people know that most lenders would be able to make a pre-approval decision if you show them your own copy of credit report without the need to make a hard inquiry that will haunt you for two years.
Unsecured Personal Loans Are One Of The Most Expensive Means Of Borrowing
Most bad credit loans are unsecured personal loans. As lenders do not have any collateral requirements for such loans, such pose a very high risk, resulting in even higher interest rates and charges. Most borrowers would accept these terms, as they feel there is no alternative option they may explore. If you look at your monthly payment composition, you may see that interest charges account for over a half of your payment amount, especially in the first months of your loan life.
Most bad credit borrowers discover that the paid more than twice of the original loan amount only once they pay off the loan. Therefore, you should only consider bad credit loans when you truly need the money and alternative options are not available to you. Otherwise, the consequences may be truly destructive and you may find yourself in situation way worse than you were in before you took the loan.
Paying Off Bad Credit Loans Earlier Saves Tons Of Money
Lenders want you to make scheduled payments, as they make more money in interest charges and fees this way. To minimize the negative consequences of bad credit loans and maximize possible benefits, you should only borrow the amount you need and repay your loan as soon as your financial situation allows, regardless of what your scheduled monthly payments are. This way you would be able to achieve two major things.