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Are you financially struggling with bad credit? Do you still need financial help to make ends meet? Do you think you will be able to repay a new loan with higher fees? Will bad credit loans, especially short-term borrowings, help you slowly recover from the credit mess you are in? Are you sure getting a new loan with possibly higher fees won’t put you in further financial trouble?

These are some important questions one should answer before they apply for a bad credit loan. They are a viable option for those with bad credit. They often involve higher fees and “interest” compared to bank loans. However, they are the only available option for many with bad credit.

Bad credit loans such as payday loans can help people keep their lives moving forward while taking steps towards improving their credit scores. However, many usually need to manage their finances carefully while getting the help of continuous bad credit loans to come out of the mess they are in. It is a process that will take some time. However, with careful management of your income, you can get there.

Most finance gurus frown on payday loans and other bad credit loans due to their higher fees. These fees, when looked at in terms of annual interest rate or APR, seem exponentially higher than personal loan interests that people with good credit enjoy. However, one must realize that a lender is taking a substantial risk by lending money to a person with bad credit. The fees usually reflect the risks.

Most importantly, those who criticize bad credit loans often leave those struggling with bad credit without any solutions. Everyone knows that they need to manage their finances to become financially stable carefully. Everyone knows that they need to avoid unnecessary borrowing. However, one might still need financial help, and what are their options? For most with bad credit problems, it’s either bad credit loans or nothing.

What Are Bad Credit Loans?

Various types of bad credit loans exist, such as payday loans, home loans for bad credit, online loans for bad credit, personal loans for bad credit, and installment loans for bad credit. These loans are similar in many ways and can be categorized as short-term and long-term.

Payday loans, online loans for bad credit, and personal loans for bad credit often have many similarities, including shorter loan terms. Payday loans usually have fortnightly or monthly repayment terms. When one borrows money as a payday loan, the repayment is due on their next payday. Similarly, online loans for bad credit and personal loans for bad credit have short repayment terms.

Home loans for bad credit and installment loans for bad credit can be categorized as long-term loans for those who are struggling with bad credit. However, the longer one enters into a loan agreement, the more damage higher fees or “interest” can cause. Therefore, you must steer clear from long-term bad credit loans, especially if they involve higher fees.

One may think that taking a short-term bad credit loan may not help them in the long run. However, doing so will prevent you from falling to dangerous debt traps while helping you keep your head above water for a small fee. You may need to seek the help of short-term bad credit loans for a while, perhaps consecutive months. However, they are an excellent way to keep things within your control while you work hard to improve your credit score.

One can easily find lenders who facilitate bad credit loans operating as brick-and-mortar businesses or online. The repayment methods vary according to the set-up of the lender. Brick-and-mortar lenders usually use post-dated checks provided by you to collect repayment and fees. Online lenders, on the other hand, initiate electronic withdrawals that will be approved by you at the time of borrowing money from them.

How Can You Get a Bad Credit Loan?

Anyone who has an active bank account and a valid photo ID confirming their identity and that their age is 18 or above can approach a lender to get a bad credit loan. The lender will quickly verify your state of your income using various tools they have, which should only take minutes. Online lenders may take up to 12 hours for verification.

Furthermore, many lenders, especially those online, claim to lend money without credit checks. However, in reality, most lenders do assess their risks by checking your credit. Most lenders who claim not to check your credit often do so to attract individuals with bad credit towards their businesses.

Repayment Method

Once a lender confirms that you are eligible for a bad credit loan, they will offer a repayment method depending on the nature of their business. Most brick-and-mortar lenders will request a post-dated check signed by you while giving you an appointment with them to repay the loan. Online lenders will request you to grant them permission to withdraw the repayment, including fees electronically.

Loan Terms

Most payday loans will be due for repayment by the time your next paycheck arrives. Longer-term bad credit loans will require you to repay the loan amount and fees or the agreed installment depending on the length of the loan term.

Furthermore, you must remember that you are eligible to request a longer loan term when getting bad credit loans. Simply ask the lender for the longest loan term they can provide for you if you feel that you need more time to repay the loan.

Will I be Denied a Bad Credit Loan?

You can be denied of a bad credit loan for various reasons although you satisfy the basic requirements highlighted above. The most common reason for a lender to deny a loan is since your income is not sufficient. One needs to have a monthly income of at least $500 to be eligible for a payday loan. Furthermore, lenders deny bad credit loans if you haven't been employed at your current job for long enough.

You must remember that certain states dictate the amount you are entitled to spend out of your monthly income. Lenders consider the amount you are allowed to pay when assessing whether your income is sufficient for a bad credit loan. Many lenders also check your other borrowings. If they feel that your other debt does not leave you enough money to repay the new bad credit loan, they will deny it.

Furthermore, individuals with a bad history of bounced checks may also be denied a bad credit loan. Most lenders see it as a Red Flag since there is a high chance of your post-dated check bouncing back when they try to collect repayment. Another common reason for being denied a payday loan is since your bank account having been opened very recently without sufficient history to base their decisions on.

Most lenders avoid providing bad credit loans to those who belong to the military because federal law prohibits them from lending money to those in the military if the APR exceeds 36%. Furthermore, those who have recently declared bankruptcy have a high chance of being denied a payday loan.

How Much Do Bad Credit Loans Cost?

Bad credit loans usually involve fees instead of interest. Many convert fees to APR to get an idea about the cost of such loans in terms of interest. Most bad credit loans involve APR's between 391% and 851%. However, since bad credit loans are usually short-term, it is more sensible to look at fees in terms of simple interest rather than APR. The simple interest for a loan of $100 with a $15 fee is simply 15%.

A payday loan or most bad credit loans should cost you $15 in fees for every $100 you borrow. Furthermore, various other fees may also apply for late repayments, bounced checks, and failed electronic withdrawal attempts, as stated by the lender. Most brick-and-mortar lenders are subject to state laws that limit their fees. However, most online lenders are not subject to such caps. Therefore, it is common to see online lenders charging higher prices for payday loans.

If you do not show up to the appointment given with the lender upon completion of the loan term, the lender will bank the post-dated check you gave them when obtaining the loan. If the check bounces because of your account not having sufficient funds, additional fees will be applicable.

Similarly, if a lender initiates an electronic withdrawal upon completion of the loan term and it is failing, you will be charged additional fees. These charges are usually called "Insufficient Funds Charges." "Roll-Over Fees" also apply on top of the standard fee if you request the lender for more time to repay a payday loan or any other bad credit loan.

Actions Lenders Take If You Don't Repay Bad Credit Loans?

The fact that you are already in financial trouble with a bad credit score means you might at times struggle to pay bad credit loans and payday loans, although they usually involve smaller sums of money. While it is highly advised to ensure that you repay bad credit loans on time, it is essential to be open to the possibility of running late with a payment. Different lenders take various steps to recover money in such events.

The first step that most lenders take is to call the borrower over the phone. They will usually ask the borrower when they will be able to repay while informing them regarding additional fees that are applied due to them failing to repay their bad, bad credit loans on time. Some lenders will be open to discussing a newer arrangement and extending the loan term.

Furthermore, in the event of the lender not being able to contact the borrower over the phone, the lender may try to call the personal references the borrower provided them in an attempt to get in touch with the borrower. Those lenders who were granted the right to recover money electronically will attempt to do so repeatedly. Some lenders try to recover smaller chunks of money from your account electronically. However, failed attempts will still be billed against you.

If these initial recover methods to not materialize towards the repayment of the loan, lenders may be forced to hire a third-party debt collector to help recover their funds and fees. The said debt collector will try to contact you by various means to try and come into an arrangement to recover the funds. This point usually resolves most repayment issues.

However, some borrowers still fail to repay the debt despite numerous attempts by the lender. It will force them to seek legal help. The borrower will start receiving letters from the lender's attorney at this point. If the borrower doesn't respond positively, they will be forced to file a civil lawsuit against the borrower.

A civil lawsuit judgment against the borrower can have serious consequences, including the seizing of their assets and the garnishing of their wages. Furthermore, such court judgments will be made public for seven years. Therefore, it is highly advised that a borrower repays the loan and fees or come to a settlement before a civil lawsuit is filed.

Types of Bad Credit Loans to Avoid

We highlighted the existence of various types of bad credit loans involving different fees and loan terms. Furthermore, we highlighted how the APR of such loans is higher than bank loans, although they may be neglect-able for loans with shorter terms. Certain loans for bad credit do have extended loan terms with some of them involving installments plans that span over a few years.

Long-Term Payday Installment Loans are available both in the real world as well as on the internet. These loans offer longer terms, with some of them extending up to three years. It is easy to be lured towards such loans since borrowers feel like they have ample time to repay while they dig themselves out of financial trouble they are in.

However, repaying a loan with sky-high interest over the years can result in the loss of a significant amount of money. There is a good chance that you would be made to pay over ten times the borrowed some by the time the loan comes to an end. Therefore, it is a wise move to steer clear of long-term payday installment loans, especially if the loan terms are very long.

Car Title Loans or Auto Title Loans require the borrower to hand over the ownership of their vehicle to the lender as collateral for the money that is lent. The lender has the power to seize your car if you fail to repay the loan on time without giving you any option or flexibility to repay the loan. Therefore, you must avoid auto title loans at all times.

To Sum Things Up

Someone can end up with a bad credit score due to a series of unforeseen and unfortunate events. Many financial institutions refuse to help those with bad credit. However, various bad credit loans to exist to help such individuals and their families survive until they regain financial stability. They have proven to be effective, along with the careful management of their personal and family finances.

One should be careful when entering any type of loan agreement. They should fully understand loan terms, fees, late fees, and other risks before borrowing money from a vendor. Furthermore, they should ensure that they repay such loans on time to make those loans work towards helping them gain financial stability and freedom down the road.

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