Shopping for a bad credit loan is not easy at all. While several lenders advertise them affordable, most of the borrowers find themselves tied into a predatory debt cycle. Though payday loans are notorious because of high interest rates, bad credit loans also seem to be terrifying when it comes to timely repayment. Some direct lenders allow you to repay the money in fixed instalments while some lenders will ask for a lump sum payment.
Whether you have to pay off the loan in instalments or you need to pay it back in a lump sum, you can fall into a debt spiral if the deal is expensive. A bad credit rating calls your creditworthiness into question, which is why direct lenders charge high interest rates. However, some online lenders provide bad credit loans with an instant decision at relatively lower interest rates.
It is essential that you shop around before applying for these loans. You need to consider interest rates, APRs, the length of the loan, late payment fees and prepayment penalty. Here is what you need to do to apply for the right bad credit loan.
Compare interest rates
Bad credit loans aim at helping you tide over during financial emergency that includes but not limited to a car breakdown, laptop repair etc. When an emergency pops up, you will immediately apply for the loan. Chances are you grab the first offer without evaluating the loan deal. Of course, you will not get the time to compare deals when you need money urgently. Therefore, try to do your homework beforehand.
The rule of thumb says that you should compare loan deals in advance. Direct lenders provide customer support service round the clock. You should ask the lender if they offer instalment facility or not. Figure out what kind of interest rates and payment terms they are providing you and then compare them with those of other direct lenders.
Find out if they run a hard credit checks
When you apply for a loan, a lender will look over your credit report to see if you have missed any repayment and accordingly decide interest rates, the size and the term of the loan. Whenever you apply for a loan, it will leave hard footprints on your credit score.
When you have already a bad credit score, it is painful to have hard inquiries on your credit report. Therefore, it becomes essential that you apply for these loans with a direct lender who runs a soft credit check.
It is similar to a hard credit check, but the only difference is it will not pull your credit score. Direct lenders who run soft inquiries decide the size of the loan based on your income statement. This approach will prevent you from falling into a debt cycle.
Check out for the loan size
Bad credit loans are short-term loans, and hence direct lenders may require you to pay off the debt in a lump sum. Borrowers consider the repayment term only. Short terms may seem great to you, but you cannot get rid of debt as quickly as the term expires.
You need to evaluate the payment size. If you are borrowing a large amount of money, for instance, £1,000, it may be difficult to pay off the loan in a lump sum. Fixed instalments can ease the burden.
A lump sum payment is fine as long as the size of the loan is small. If you have borrowed a large amount of money, try to look for fixed instalments.
Take a look at reviews
Do not trust advertisements blindly. You should find out how other borrowers are satisfied with loans offered by the direct lender. Customer reviews can help you have a deep insight into terms and conditions. Social media is the best place to know the experiences of people. Check out what kind of comments people have posted and then make your decision.
The bottom line
Finding the right bad credit loan is not difficult if you do your homework beforehand. You should compare interest rates, and check out for both the repayment term and the loan size. Try to contact a lender who runs a soft credit check.