Bad Credit Loans

In this time of increased financial distress for the majority of South Africans, many of us are searching for avenues that will get us out of debt in the easiest and most affordable way. However this becomes more complicated when you have a history of financial mismanagement and find it difficult to keep up with debt repayments.

Bad credit loans are specifically designed with these individuals in mind: people who have had bad credit experience in the past and even those who have had no credit history at all.

What does a Bad Credit History Entail?

If you are listed as having bad credit history, your credit score will typically be in the region of less than 580. This will be determined by a range of factors including missed payments, arrears, and even court judgments that classify you as bankrupt.

Just because you have a record of bad credit doesn’t mean that there are no companies that will lend you money. You will naturally have to pay more for these loans because you are a high risk borrower, but there are different types of bad credit loans that you could consider that will help get you out of the red.

Types of Bad Credit Loans

• Unsecured personal loans

Even though the title of this loan can be off-putting, you should not rule it out as a viable option to your debt crisis. Also known as a personal loan, this scheme actually presents a less risky option because the borrower doesn’t have to put a valuable asset such as a house up as collateral, before they are considered for the loan.

Instead of the person’s assets serving as protection, this loan will be supported by his or her credit rating. The average repayment period for an unsecured personal loan is five years or less. On the downside, due to the fact that a relatively small amount is being lent for a short lending period, a slightly higher interest rate will be calculated for this kind of loan – especially if the borrower has a bad credit rating already.

• Secured loans

If you decide to opt for this loan you will have to offer some form of collateral that serves as protection, in case you are not able to pay back the loan you have taken out. The perk about this is that the borrower will be able to acquire a larger amount from the lender, than he or she would from a normal personal loan. Due to the security offered on the loan, the lender will view the borrower as less of a risk, and offer that individual a favourable rate of credit.

Often secured loans are preferred because they are easier to obtain given the security factor, the repayment period for the loan is significantly longer, and a larger sum of money can be borrowed at the outset. Be aware that there is a massive risk involved in such a scheme as the lender can seize your property or asset at any time, if you happen to miss loan payments or do not fulfil your end of the deal.

Start a Fresh by Acting Responsibly

A simple rule of thumb is that if you know you will be unable to meet the obligations of your new bad credit loan, you should resist borrowing the money in the first place. The last thing you want is to damage your credit rating even more.

Of course people that have bad credit are the most risky clients for lenders, as they do not have a good track record when it comes to loan payments. At the same time, some credit loans are outright scams, which is why you should do some research to double-check which lender companies are reliable to borrow from, and which ones are simply trying to make an extra buck out of you.