If you have bad credit and are deeply in debt, you should try to avoid bad credit loans. However, if you are in a situation where you must borrow even if you have bad credit, there are five pitfalls you should look out for.
1. Payday Advance Loans.
Payday loans are the most readily available and are potentially the most damaging type of loan you can obtain. Once all fees are calculated, some payday terms have you paying as much as 400% of interest each year.
With these types of short term loans, your ability to pay it back may not be as easy as it initially appears, and the temptation to renew the terms is strong if your financial situation has not changed. This can lead rapidly to a vicious cycle of borrowing to pay the interest owed, and eventually you are "robbing Peter to pay Paul."
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2. Car Title Loans.
These types of loans carry close to the same exorbitant rates as the payday advance loans, although car title loans come with the added danger of losing your vehicle at the end of the process. This kind of borrowing should be assiduously avoided, as the prospect of losing your vehicle can often result in the loss of your job as well.
3. Secured Loans using personal possessions as collateral.
Secured loans require collateral in exchange for bad credit loans. These companies will place a lien on any collateral you present, and can gain possession of that collateral if you default on your loan. These borrowing terms are near identical to title loans in that they have high interest and acquisition fees.
4. Loans that require multiple references.
In most instances, bad credit loans will require that you provide a list of multiple references at the time you apply for the loan. A reputable company will likely ask for no more than three or four references; anything more is considered excessive by some. Please note that if you default on your loan repayment plan, these companies will contact your references directly in an attempt to reach out to you.
5. Loans that encourage you to give false information.
These types of bad credit loan companies offer their loans with disproportionate high interest rates and use questionable, often harassing collection tactics when necessary.
The agents at these bad credit loan companies tend to earn a commission on each borrowing contract they write. This gives them an incentive to write as many loans as possible. After defaulting on your loan and/or renewing the loan several times, the charges you incur may well exceed the amount you were lent. This is how these types of bad credit loan companies make the bulk of their money.
Please beware of those few agents working with predatory lenders that will make false statements on your loan application, by inflating your monthly income and qualifying you for a loan you would not otherwise qualify for. Remember to ALWAYS read and verify all contract information before executing the legally binding contract agreement.
In conclusion, if you have bad credit and are in need of a loan, please take a moment to review your various options. Hopefully, you will find the information contained here useful. If at all possible, steer clear of unscrupulous lenders that can ultimately cause you more harm than not.
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