Bad Credit Loans: Don’t Be Afraid, Be Cautious

There is much written about bad credit loans and most of it is of such an alarmist nature that those who really need to resort to this kind of loans are usually afraid of agreeing on a bad deal that may destroy their credit. However, there is no reason to be afraid; if you are well informed it is enough to be cautious when choosing the lender and the loan.Bad Credit loans are a legitimate option for those who have less than perfect credit and need finance to get back on track. There are just several things you need to know in order to select the right lender and loan for you and in order to avoid these loans from becoming an unbearable burden.ConceptBad Credit Loans are personal loans that can be secured or unsecured. If secured, collateral can be a house or an apartment (mortgage loans, home equity loans) or a car or other vehicle (car loan, etc.). If unsecured, bad credit loans have more requirements and are harder to get approved for.Bad Credit Loans are specially tailored for those who have a bad credit score and credit history. The lenders that deal with this kind of loans are used to risky transactions and will approve your loan when a traditional lender wouldn’t. This doesn’t mean however, that you will get approved no matter how bad your credit situation is. For example: If you are currently undergoing a bankruptcy process, you won’t be able to get approved for a loan. But, if your bankruptcy has already been discharged and six months had passed, then, you can get approved.What to ExpectWhen you apply for a bad credit loan you should expect high interest rates, low loan amounts and short repayment programs. These lenders are used to high risk applicants but this is the way they reduce the risk of default or late payments. Secured bad credit loans however will provide you with higher amounts and lower rates as long as you have sufficient equity on your home.What to AvoidWhen searching for a lender you should avoid those lenders that offer cash advance loans unless that’s what you are looking for. Cash advance loans have almost no credit requirement but feature exorbitant interest rates and very short repayment programs. They should only be used in an emergency and not as a source of finance for regular use.Income, Spending And Debt ExposureBesides credit requirements, lenders will focus on your income, spending and debt exposure in order to decide whether to approve you for a loan or not. Your income needs to be high enough to let you afford the monthly payments and you still have to be able to face other expenses or else you won’t be approved. Spending is also an important variable; too much spending will reduce your ability to afford the monthly payments with your income and lenders always want you to have a surplus. This is due to the fact that unexpected situations can always take place and compromise your ability to repay the loan unless you have money to cope with them. Last, but not least, your debt exposure (incidence of your debt on your monthly income) is also an important factor. If most of your spending is debt payments, lenders will think twice before approving you for a loan even if you would otherwise qualify.