Coming face to face with a cash emergency is not always a pretty idea. But these moments come at least once in our lives, and when our wallets are empty and we badly need cash, loans come to mind. Bad credit loan in particular is a useful type of loan designed for people with no so outstanding credit score. These loans are sometimes called online loans, installment loans or payday loans.
But like most things in life, bad credit loans have its own good and bad aspects.
Good Credit Score Not Required
Best loans for people with bad credit were designed primarily for persons with poor credit rating, therefore, you don’t have to worry about credit scores when you try to apply for these loans. People with good credit can of course still apply, but people with bad credit who used to be denied of loans can now have access to emergency loans.
Can Be Used for a Variety of Purposes
Unlike auto loans or mortgage loans which were designed for a specific purpose, you can use bad credit loans for almost anything – pay bills, cover medical expenses or additional business capital. Of course, it is advised not to spend the loan on luxury since this will incur interest.
No collateral needed
While most loans require collateral to afford the lender some form of security, bad credit loans do not require collateral. This makes the application process much simpler and quicker, while providing convenience to borrowers who do not high-value properties to present as collateral.
Perhaps the main drawback with bad credit loans are their higher interest compared to regular loans. Most bad credit lenders, most especially those that offer payday loans, increase the interest in order to afford some assurance of return money in case you default on your loan.
You are considered a high-risk borrower.
Being a high-risk borrower means you have greater possibility that you will default on your loan. Although the lender is willing you let your borrow money, it is normal to sense some hesitation especially if you’ve had bad credit score for a long time. This also explains why lenders impose higher interest on bad credit loans.
Since bad credit loans are easier to avail, borrowers may see it as instant money.
Instant money is tempting in such a way that you might be prompted to spend for things that may otherwise be saved up for. For instance, a gadget upgrade is not considered an emergency. You can also save up for vacations, new bags or shoes. However, if the case provides some form of inconvenience, say the machine you use to operate for business or your house has a serious case of leaking in the roof, using bad credit loan may be justified.
Many people fall into the vicious cycle of debt and suffer accumulated loans because they fail to use the borrowed money in a proper way. While you have the ultimate freedom on where you want to spend bad credit loan for, it is best that you utilize the money in such a way that will solve problems in the bigger scheme of things.