Advantages and disadvantages of loans for people with bad credit

US-PDGOV

You are in a desperate need of immediate cash, which has made you run from pillar to post to get a loan. However, your credit history depicts you as a poor payer or a defaulter and being short of money you find yourself in the doldrums as you can see no escape from the emergency that you are in. 

If you have bad credit and need  loan you are not alone and there are many like you who find themselves in such a crisis. Thus, in view of such borrowers, many lenders in the financial marketplace have resorted to providing loans for people with bad credit. However, before you take the plunge to apply for a bad credit loan, take a look at the advantages and disadvantages of the same.

Advantages of bad credit loans

No issues with bad credit history- The best part of bad credit loans is that you need not worry about your past credit record since the lenders do not bother about such things. Instead, they look at the capacity of the applicants to repay the loan in future, unlike conventional methods of lending where the past financial record forms one of the main factors on the basis of which a loan may be out rightly rejected.

Fast approval- While personal loans applied in the conventional methods are hard to get approved; approval rates for bad credit loans are much higher ranging from 80 to 90 per cent.

Building credit score- Even if you have had issues with your credit score before on grounds of being a defaulter in repaying the dues, obtaining a bad credit loan gives you the opportunity to re-build the same. By timely and regular repayment of the loan amount, you can improve your credit score, thereby building a strong financial standing.

Large amounts- Bad credit loans also have the advantage of lending you higher amounts in a short span of time, although higher the amount, higher will be the interest that you have to pay.

Disadvantages of bad credit loans:

High interest rates- Lenders giving out loans to those having a bad credit history, in lieu of the high rate of approval and fast unsecured personal loan, charge rates of interests which are much higher than the normal ones. This is a sort of security, with which the lenders arm themselves in exchange for giving out bad credit loans.

Unsecure provider- Since the system does not come with a guarantee, often people applying for bad credit loans fall into the trap of going for the wrong lender.

Finally, if you apply for loans for people with bad credit, you need to be sure of being able to repay it timely to avoid being entangled into a vicious cycle of debt.

Bad Credit: Bank Account Reference Guide

The "no-chexsystems" bank account is a type of bank account extended to individuals with an unfavorable credit scores. A bad credit bank account should be insured by the Federal deposit insurance corporation (FDIC), if located within the United States. FDIC insurance allows the money within the account to be protected. If the money is not FDIC insured, the bad credit bank account may be located offshore or be an unsuitable type of account.

To obtain a bad credit bank account and individual should be of legal age i.e. 18 or over and have a valid form of appropriate identification. These types of bank accounts can be set up online and deposits can be made via an electronic payment service of which there are several on the internet that are reliable.

As with any transaction involving finances, it is wise to take precautionary steps before depositing and/or sending money to a financial institution. Such steps may include but not be limited to verifying a physical address in the case of online banking within one's country, performing fraud and scam searches using the bank's name, and by contacting the FDIC to verify insurability of the funds.

Obtaining a bad credit bank account may allow an individual to later obtain a secured credit against the account or obtain loans against the funds in the account. In such instances, this would allow the account holder to build credit and have a bank account in which to deposit paychecks, and/or other funds. Bad credit bank accounts may also allow the account holder to obtain debit cards, issue checks, offer interest on savings etc.

Disadvantages of bad credit bank accounts include the possibility of few or no physical locations other than ATM machines. This is especially the case if the bad credit bank account is obtained through an online financial institution. Additionally, the risk of online identity theft is present when conducting financial transactions over the internet. Whether an account is through a brick and mortar financial institution or via the internet, confirming privacy policy with the bank may be necessary.

Learning From Bad Credit

Bad credit can be caused by irresponsible financial practices or via no fault of one's own. The Fair Isaac Corporation reports the average consumer carries 13 credit responsibilities generally consisting of credit cards and installment loans. Moreover, in 2009 the U.S. Federal Trade Commission (FTC) reports 278,078 potentially credit damaging, identity theft complaints were made according to the FTC's identity theft clearinghouse and consumer sentinel.

This doesn't include the 721,418 fraud complaints from the same year. Such identity theft can lead to bad credit in addition to faulty credit reporting and individual factors such as late payment of bills.

Poor credit in an economic system sometimes forces individuals to learn from the resulting situations. However, a bad credit situation isn't always the fault of the individual. If the bad credit is due to individual reasons, it doesn't have to be a terrible thing. Having bad credit can leave one with new options and as the saying goes, "when one door closes, another may open."

Knowing what that new door is indicative of learning from bad credit. More specifically, creditors are more likely to be reluctant to lend to persons with bad credit in effect asking one to improve the credit score before any new money is loaned. How an individual learns from the bad credit may lead to different outcomes. This article will illustrate ways an individual may choose to learn from the bad credit.

Report identity theft and faulty credit reporting

The first step in learning from bad credit is knowing what caused the bad credit. Unfortunately, this may involve some research for no fault of the individual if one's identity, credit cards or other financial information has been stolen and in the case of poor credit reporting on behalf of financial institutions. To find out if the bad credit is one's own fault the following steps may be helpful:

• Check bank statements for erroneous or suspicious charges
• Call the bank or credit card company to report lost or stolen cards
• Request an immediate investigation and reversal of false charges
• Order a free credit report(s) from http://www.annualcreditreport.com
• Request a marketing freeze by calling 1-888-opt-out to minimize financial risk

Allow experience to show the way

In the case of an individual bad credit score, one can either learn to not be so dependent on credit companies, learn to build credit scores or choose renunciation the credit institution altogether. In either one of these cases, one is learning from the experience of bad credit, and making a decision for oneself about how to move forward with life. A first step one may take in learning from bad credit is to acknowledge and identify what is going on. The following are signs of bad credit:

• Low credit score
• Late payments on bills
• High interest rate
• Financial stress

After the bad credit is identified, one may then begin the process of thinking about it, reacting emotionally to the situation, or simply not caring. Which ever method one chooses the bad credit presents some unique opportunities:

• A chance to recognize one's financial situation
• A financial reality, in which one must either act or live without credit
• An excuse to not spend money
• The beginning of a new credit life, and the end of an old chapter in one's life
• A way to learn about protecting one's credit identity and profile

Immediate solutions and building new credit

It is not the end of the world when bad credit strikes. There are several ways to deal with the situation. In the case of identity theft, one can file a identity theft report. The Federal Trade Commission is a Federal organization that may be of assistance in this matter. If the credit problem is due to faulty financial reporting by a financial institution, one may need to produce paper work proving the fault and request the credit reporting agency correct the credit report. To rebuild bad credit caused by personal reasons, a step by step process may be followed. A few tips with which to deal with the bad credit are below:

• Ask the credit company or lenders for debt re-negotiation
• Contact a reputable credit counseling service
• Stop spending as much or re-budget
• Consult people one feels comfortable talking about such matters with.
• Consider legal options

The above methods may provide some immediate assistance to the situation but are not necessarily a long-term fix or cheap. Credit counselors, credit card companies and others may try to help one achieve a second chance, but what one does with that chance is up to the individual. One can learn a number of things from bad credit such as how to deal with credit card companies, what remedies are available and what steps must be taken to report financial reporting problems and theft issues.

After dealing with the immediate problem, one may then learn how to build new credit through obtaining secured credit cards, paying bills on time, identifying the ways credit scores rise etc. The whole process could take weeks to years depending on the severity and how complicated the situation is.

In summary, bad credit is not usually a pleasant experience that may or may not be caused by individual fault. In identifying, acknowledging and reacting to bad credit one may learn either directly or indirectly, how to deal with the bad credit, build new credit and take new approaches in the future. In these ways, bad credit is a learning experience, and in some cases a somewhat involuntary learning experience.

Sources:

1. http://www.myfico.com (Fair Isaac Corporation)
2. http://www.ftc.gov (Federal Trade Commission)

Tips for Obtaining Credit Cards with Bad Credit

Even if you have bad credit you may still be able to obtain a credit card. Several ways to obtain a credit card with bad credit exist, and if those don't work there are viable alternatives to credit cards that can allow you to apply and receive a credit card in a relatively short period of time.

Image source: Petr Kratochvil

• Instant approval credit cards

The obtaining instant approval credit cards is less dependent on credit scores because they require the balance on the card to be paid in advance. Several instant approval credit cards exist and include the 'GreenDot PrePaid Mastercard', and AccountNow Prepaid Visa Card among others.(1)

• High interest credit cards

If a pre-paid credit card isn't what you're looking for a high interest card may be a reasonable short-term solution if you plan on paying off your purchases before expiration of your credit card's billing cycle i.e. on time. Establishing and paying high interest credit card credit can build credit score and warrant lower rates in the future.

• Secured credit cards

A classic way of obtaining a credit card with bad credit is the secured credit card, this ensures the creditor that no matter how bad you spend, an amount equivalent to the card's balance has been put aside to cover the cost of risk should the credit card holder fail to make payments on the credit card. As with regular payments on high interest credit cards, secured credit cards can help build credit toward obtaining a non-secure credit card.

• Single store credit cards

Retail outlets such as clothing distributors or automotive repaid companies may also issue credit to people with bad credit depending on their credit requirements.(2) A condition for more easily obtaining such credit cards may be higher fees and/or interest rates. This may be because sales made to people with bad credit can be sold to collection agencies for a fraction of the price at least yielding a partial revenue to the company printed on the credit card.

• Co-signed credit cards

Co-signed credit cards are similar to secured credit cards except they are secured by the credit of another person with presumably better credit, than with actual funds. This helps the lender guarantee payment of the balance should a problem occur with non-payment by the primary account holder. In such instance, the co-signer of the credit card loan is also responsible for the credit card balance so finding a willing co-signer may be just as difficult as obtaining a willing credit card lender for the same reason of bad credit.

If obtaining a credit card with bad credit is not achievable right away, several additional options exist that help build credit may also help you acquire a credit card in the near future. For example, some prepaid debit cards actually have a built in credit reporting program that helps the card's holder build credit score. After the program is complete, the issuing bank or other lenders may then be more willing to offer credit card to those with bad credit.

Sources:

1. http://bit.ly/bfRf8Z(Creditcard.com)
2. http://bit.ly/aHT1SC (Bankrate.com)