Personal loans are risky by definition because they are unsecured. Lenders have always been cautious when extending personal loans. Usually lenders look at the borrower's credit history to determine how much they re willing to lend and the interest rate they will charge to lend it. For many years, that left individuals with bad credit without a lifeline for emergencies.
That said individuals who are employed and have bad credit still have access to personal loans-the interest rates are higher and the amounts the individual can borrow are lower. Credit unions and some banks and savings and loans have begun to offer short-term personal loans to their members and clients who have bad credit. These institutions offer the lowest rates available to individuals with bad credit. In addition the often provide credit counseling and can give the individual strategies to improve their credit rating.
Payday loans are another choice for emergency funds for people with bad credit. The advantages of a payday loan are that it is immediate and that as long as the borrower has a job, no one is turned away. Payday lenders often limit the amount they lend to $500. The downsides to payday loans are that they are very short-term and the interest rates are inordinately high. Typically, payday lenders charge $15 to $30 per each $100 they lend. So if the borrower takes a loan of $100 today, on payday the borrower must repay $115 to $130.
Payday loans present a serious risk to borrowers simply because the terms of the loan are so short. Most borrowers who seek payday loans were living paycheck to paycheck before the emergency arose. So while the payday loan may solve today's emergency, two weeks from now when the loan comes due, borrowers find themselves in a fix, they pay the fees and roll the loan over.
Once a borrower begins the cycle of rolling over their loans, there is often no way out. The payday loan that was meant to solve an emergent problem has become the problem itself. If for instance, a person borrowed $100 and wrote a check for $130 to pay the principle and interest, only to find out that come payday, they didn't have the funds to repay the loan. The borrower then pays the $30, and rolls the loan over. If the borrower rolls the loan over three times, he/she has paid $90 in interest in six weeks.
Bad credit does have to mean bad choices. Individuals with bad credit should shop around for emergency loans to see what is available to them before the emergency hits. When an emergency does occur, they are ready to get the best loan with the lowest interest rate for their situation.
About the Author:
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