Bad credit loans: an analysis |
Posted: June 20, 2018 |
Bad credit loans are those loans which are offered to people with bad credit history. There are a lot of reasons which can cause a bad credit loan. Bad credit history mainly occurs due to the significant expenses made by the individuals, or when they make a massive purchase or when they spend an enormous amount to maintain or fix a home or a car. Even maxing out credit cards or outstanding debts are also considered in the bad credit history. Score range: Credit score range is associated with the credit history. Which interprets how risky the bad credit loan can be for the creditors. Minimum of 600 points are required to qualify for the bad credit loans. Having a negative track record, late payments and loan defaults will eventually end up in having lower credit scores. Repayment terms: There are even reports that can only be generated by the banking institutes, which provides the information regarding credit histories of the client, that help lender in the decision-making process. If the individuals qualify for the loan despite having a bad credit history, they have to make larger down payments and will be charged higher interest rates as compared to the borrowers with clean or good credit histories. Bad credit loans are of shorter-term lengths than good credit loans because more the riskier, the shorter the tenure for the facility would be. Standard loan terms for bad credit loans are from two to five years, whereas good credit loans allow the term lengths for the loans ranging from one to seven years conveniently. Likewise, term lengths interest rates are also higher for bad credit loans as compared to good credit loans. According to bank rates, bad credit loans are of the average annual percentage rate of 25%, but the good credit loans are charged with an only annual percentage rate of 4%. Example: For further clarification, an example is given below; Let's say a borrower has been lent a bad credit loan of $10,000, with three years of term length and 25% of interest rate his monthly payment would be $397.60, whereas his total markup paid on loan would be of $4,313.14. But on the other hand, good credit loan with same term length can be charged with 4.29% of interest rate. Resulting in the $296.53 of monthly payment and $675.14 of total markup on his loan. Hence the same exhibits, a total of $3,638 in interest amount will be saved by the good loan holder. How can bad credit loans be fixed? Now the critical question is, how bad credit loans can be fixed? The answer to the question is, the borrower himself can only rectify it. Borrowers can make efforts to improve their paying off habits, as to fulfill all the repayment terms accordingly. Make expenses strategically, reduce or settle their outstanding loans, borrow loans once the already borrowed loans are paid off. Bad credit loan causes a lot of hindrances for borrowers too as lenders get hesitant while giving loans to the borrowers with bad credit history as they are a risk to them because at any time they can be at default.
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