The advertisements for bad credit personal loans say that they offer you quick cash now to tide you over until your next pay day. Many bad credit personal loans carry a price, however, for the advance.
No other option?
Bad credit personal loans are sometimes referred to as payday loans, emergency loans or personal cash advances. Personal cash advance loans are normally quite a bit more expensive than the conventional bad credit personal loans, but with extremely bad credit they may be one of the few loan options available.
Interest Rates
Because companies providing bad credit personal loans are taking a risk in offering loans, they compensate for that risk by charging high interest on the loan amount. While researching, I found that most bad credit personal loans incur interest charges of approximately 12% per week for every $100 borrowed. This comes out to be 625.72% APR. Interest rates can also vary depending on your credit rating, which is often a consideration for some bad credit personal loans.
To qualify for bad credit personal loans
You have to be at least 18 and currently employed to qualify for bad credit personal loans. While researching, I also found that you need to have a current checking or savings account at an accredited bank.
Credit checks
Companies offering bad credit personal loans say that your credit rating does not matter and they will not run a credit check on you. However, bad credit personal loan companies will confirm that you have a valid bank account and will most likely verify all information submitted on an application.
Other caveats
Sometimes, when a person’s credit rating is very poor, the institution providing bad credit personal loans will require that you sign over your car or house as collateral, depending on how large the loan amount is.
Alternatives
Defaulting on bad credit personal loans will affect your credit rating, perhaps more negatively than with a “regular” bank loan, because the loan is for people with bad credit. Also, most credit cards allow the cardholder to withdraw cash up to the card’s limit. The interest on credit card cash advances starts accruing when you withdraw, as opposed to after a grace period with all other charged transactions.
National Foundation for Consumer Credit (NFCC)
The NFCC works with creditors to help people get out debt and manage their income, so that situations requiring bad credit personal loans do not occur. NFCC is non-profit, completely confidential, with certified counselors and is accredited. NFCC has a budget calculator on its web site so that people can compare their spending with others in their income range and see if bad credit personal loans are necessary.
How healthy is your budget to debt ratio?
Are you always late with bill payments? Would you find it impossible to pay for basic living expenses if you lost your job? Do you put off doctor visits because you can’t afford them?
If you answered “Yes” to any of these questions, you may want to consider a debt counselor rather than bad credit personal loans.
By Virginia Zignego