Loans for Bad Credit
You might wonder why would a lender offer a loan to somebody who has bad credit or who has a history of defaulting in making repayment of earlier loans and therefore risk its money? Here are several reasons why loans for people with bad credit exist.
You may have a more acceptable reason why you have defaulted in your earlier loans payment. Defaulting in loan payments does not necessarily mean you have bad financial management and attitude toward dealing with your financial responsibilities. That’s why when you apply for a bad credit loan, your lender will likely ask you how you acquired bad credit.
Lenders will likely be willing to work with you if the cause of your bad credit was out of your control. For instance, you were dealing with divorce, child support issues, death or a family, medical emergency or temporary job loss. And while you still have bad credit, you have resolved the issues that severely affected your finances and you are now back on track to fixing your score.
If this is the case with you, then your lender will likely be willing to risk its money for you to help you deal with your situation. Lenders waive the risks they take in giving bad credit loans by charging higher interest rates and fees.
Lenders obviously take more risks in transactions involving loans for people with bad credit so they waive those risks by charging more fees or interest rates. This is most especially true with unsecured loans for people with bad credit.
Moreover, they don’t just make money through the interest rates but also through penalties, which bad credit borrowers are more likely to incur. For instance, bad credit cards which is a type of loan offered to people with bad credit, charge not only APRs but also late payment fees, late payment APR, annual fee, cash advance fee, etc. So if you don’t pay your bad credit debt according to the terms you and your lender agreed to, you will be subject to more fees, which is another money-making opportunity for lenders.
Bad credit lenders put more importance on your capacity to pay than of your credit history. Traditional lenders such as banks always look at your credit performance for regular loans. The rationale behind is that if you were not good at paying your earlier debts, then you are likely to default in paying for a new loan.
However, for lenders that offer loans for people with bad credit, although they may not totally ignore your credit score, your capacity to pay your loan off is more important than a past mistake. If you currently have a good income, you don’t have too much loans or you are willing to put a valuable asset such as a car, real estate property or jewelry as collateral for your loan, lenders will find you a less risky borrower despite your bad credit history.
In other words, it is not just you who is benefiting from bad credit loans. While your lender is willing to offer you financial assistance despite your tarnished credit history, there are also lots in store for them in these transactions.