How Can I Get a Bad Credit Loan?
Anyone who is 18 older, owns a valid and active bank account, and a photo ID is eligible for a bad credit loan or payday loan. Once you inform a lender that you would like to obtain a bad credit loan, the lender will check the validity of your income and issue cash as quickly as 15 minutes if you are getting the loan at a brick-and-mortar establishment. Online lenders may take a maximum of 12 hours to lend you money.
You will be asked for a signed post-dated cheque or provide permission to the lender to withdraw money from your active bank account electronically. Once you receive the money, a payday loan will be due at your next payday. Bad credit loans with longer terms will be due once the period of those terms expires.
You are usually expected to return to the store to repay the money when the loan term is up. If you fail to appear at the premises of the lender, they will bank the cheque that you provided when you obtained the loan. Online lenders will initiate a withdrawal electronically with fees and interest.
Reasons for Being Denied Bad Credit Loans
You may be 18 or older, have an active bank account, and have a steady job or a source of income but still, be denied a bad credit loan due to various reasons. One of the most common reasons for rejecting a bad credit loan is since the potential borrower doesn't have enough income. Most lenders require that you at least have a net income of $500 per month to be eligible for a bad credit loan.
Furthermore, various states may dictate how much you are entitled to spend from your income. Some lenders have multiple algorithms to determine the risks of lending you money. You will be denied the loan if you fail these repayment criteria. Lenders can also track down your existing loans and debts instantly. If they feel that your outstanding loans will not allow you to repay the bad credit loan that is pending, your loan request will be denied.
Having a history with bounced checks may also lead to lenders denying bad credit loans. Another common reason for the denial of a bad credit loan is because the borrower hasn't been an employee at his current job for long enough. Your bad credit loan may also be denied if the bank account you provide has been opened very recently.
Federal law states that lenders should not provide short-term loans that have a higher APR than 36% to members of the military. If you work for the military, and if the interest is higher than the said figure, your bad credit loan or payday loan will be denied. Furthermore, you might be denied a bad credit loan if you have recently declared bankruptcy.
How Much Does a Bad Credit Loan Cost?
Brick-and-mortar lenders are subject to state laws. Therefore, they only charge around $15 per every $100 that you borrow. Online lenders, on the other hand, are usually exempted from such state caps. Therefore, they usually charge higher rates for the money they lend. Bad credit loans obtained from online lenders, by average, cost around $15-35 per every $100 that is borrowed.
Additional fees are applicable if the borrower does not repay the loan or an installment on time, such as late fees and return-payment fees. If your bank account does not have enough funds when the lender tries to debit your repaying either by cashing the post-dated check provided by your or through an electronic withdrawal, you will be charged an "Insufficient Funds Charge" as informed on the agreement.
Some people obtain bad credit loans but end up needing more time to repay those loans due to various reasons. They will be charged "Roll-Over Fees" in addition to the original loan amount and the fees to postpone the due loan date.
Most bad credit loans involve fees instead of interest. Therefore, it is difficult for people to get an idea of their interests. However, it is a common practice among those who analyze bad credit loans to convert fees to Annual Percentage Rate or APR. If you look at bad credit loans in terms of APR, they carry an annual interest of around 391% to 851%. However, the benefit is only 15% when you look at a $15 fee for $100 per month in terms of simple interest.
What Happens If I Fail to Repay a Bad Credit Loan?
The fact that someone is considering getting a bad credit loan is due to them already being in financial trouble with banks and most other financial institutes refusing to lend them money. Therefore, that person has a higher chance of ending up not being able to pay a bad credit loan. Different lenders practice specific recovery methods if a borrower fails to repay bad credit loans.
The original and most common method is to reach the borrower over the phone. The lender will discuss repayment options with the borrower, and either will come to a new arrangement or decide to escalate the matter. If their efforts to collect the money fail, they will seek the help of third parties to collect the debt.
Some lenders will continue with their efforts to electronically withdraw money from your account, even if it involves withdrawing money in small amounts instead of the full amount you owe them. However, failed attempts will result in bank fees being charged against the borrower.
If the matter isn't resolved by now, the borrower will start receiving letters from the lender's lawyers. They may also try to reach the borrower's references over the phone. The lender will approach you again to negotiate a settlement, even at times, for some part of the money you owe them. Some lenders will hire a debt collector to help collect the money you owe or consider filing a civil lawsuit against you.
Civil lawsuits can have devastating results if the lender can prove his case. They might result in the court seizing your assets and garnishing your wages. Furthermore, the court judgment will remain in public records for seven years.
What Bad Credit Loan Alternatives Should I Avoid?
Various forms of bad credit loans exist, such as payday loans, home loans for bad credit, or online loans for bad credit. Furthermore, different variations of these loans or alternatives also exist. Some of these alternatives can put you in severe financial trouble instead of helping you recover from the financial difficulties you are already in. Therefore, you must stay away from such bad credit loan alternatives that also include personal loans for bad credit and installment loans for bad credit.
Long-Term Payday Installment Loans
These loan facilities are available both online and at brick-and-mortar establishments. Most of these loans offer extended repayment terms that will enable the borrower to take up to three years to repay the loan amount. However, these bad credit loans carry very high-interest charges that result in the borrower paying even more than ten times the borrowed amount over the agreed duration of the loan.
Auto Title Loans
These laws are legal in some states and involve the borrower handing over the title of their vehicle as collateral for the money they borrow. These alternatives put borrowers at risk of losing their vehicles. So they do not have a chance of coming into a settlement with the lender in the event of them failing to meet their loan terms.
Various emergencies and unfortunate events often result in people ending up with bad credit. It makes becoming financially secure even more challenging to those individuals as banks and other major financial institutions refuse to lend money to those with poor credit. Many finance pundits see bad credit loans and payday loans as financially poor methods of getting oneself out of a bad credit score.
However, it needs to be mentioned that many direct lenders with acceptable fees do help individuals who are trying to make ends meet to become financially stable. Bad credit loans indeed involve higher fees. However, they provide solutions, although they come at a cost to those who are in dire need of funds. Borrowers simply need to look into various options out there for those with bad credit and smartly choose the best one that will help them regain control of their finances in the realistically quickest time.
Therefore, you can use bad credit loans to help yourself on your way to financial security over some time. It is essential to realize that you will not be able to get a good credit score overnight. However, they can help you get there, one step at a time, without you or your family having to struggle unnecessarily.