Bad credit loans are becoming more and more popular. People of every ethnicity, age, socio-economic status, and gender are finding themselves battling low credit ratings. Fact is, it’s pretty tough to keep your credit score up in an economy that is far less than perfect. However, one way that people who are struggling help themselves, and their credit, is by utilizing bad credit loans.
What Are Bad Credit Loans?
Typically, when a person goes to apply for a loan through a bank, their income and credit rating is used to determine whether or not they are eligible. Banks have very strict guidelines for this, and it doesn’t matter what events surround the accumulation of bad credit. You were laid-off after an impeccable payment history? It doesn’t matter. A breadwinner in your home passed away? It doesn’t matter. What does matter is that you are floundering, need a financial break, and can’t seem to get one. Bad credit loans provide that break but often at a steep price.
There are some lenders that specialize in quick no credit check loans. If you go with a lender like this the interest rates may be slightly higher. This is due to the fact the lender is taking on a larger risk by not checking your credit history.
Bad Credit Loan and Interest Rates
Interest rates greatly affect the overall amount that you pay on a loan. The downside to bad credit loans is that they often have very high interest rates to help protect the lender against bad credit risks, which are the borrowers with low credit ratings. For instance, a person with excellent credit may be able to get a regular new auto loan anywhere between 2.99% and 3.04%. This is a very reasonable rate. However, while those with bad credit may be able to attain a loan, they’re going to pay much more for it. A typical auto loan interest rate with a bad credit loan on a new vehicle can be as much as 4.56%, and on a used car, as high as 9.01%.
Other unsecured loans can be even higher. For instance, it isn’t uncommon for an unsecured personal loan to carry an interest rate higher than many credit cards at 19 to 20%. Payday loans have extremely high interest rates because of their short duration, often shooting up above 150% of the overall loan.
Although these high interest rates may seem like a bad deal for borrowers on the surface, they may be their best ticket for improving their credit. After all, your credit can’t get higher if you don’t exercise it.