Taking a loan to buy something, a car for instance, is an accepted practice. When faced with a loan application, lending institutions such as banks typically evaluate the potential borrower's credit record. Also known as credit history, credit record is an individual's previous loan repayment record. Loans given to people with a bad credit record are called bad credit loans.
What should I know about these loans?
A person with a bad credit usually has a history of loan defaults, such as failure to repay, mortgage arrears, bankruptcy, etc. Lending institutions typically consider such individuals undesirable as potential borrowers. This is why, bad credit loans usually have stringent conditions - such as higher repayment rates or higher interest rates - attached to them.
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Bad credit loans, in common with loans in general, are classed as either secured or unsecured. A bad credit loan is called secured when it is taken against some collateral, such as property, owned by the borrower. An unsecured bad credit loan, on the other hand, has no such collateral offered against it. Because of this, unsecured bad credit loans, naturally, demand higher interest rates.
Tips
Here are some tips to help you if help you if you are looking for a bad credit loan:
o Verify your credit record. Incorrect information in your credit record may result in you being charged a much higher rate of interest. Therefore, always check and correct your credit record before you apply for a loan.
o Research the market. Lenders offer varying terms on bad credit auto loans. Doing some research first will help you get a loan with the best terms.
o Avoid paying a dealer's commission. The dealer from who you are making a purchase may offer to help you arrange for a loan. However, remember that he or she will receive a commission on the deal, for which you will be have to pay.
o Assess terms and conditions carefully. Often, borrowers do not bother to study the loan agreement in detail. However, it is very important to understand all the clauses before accepting the loan.
o Draw up a repayment plan in advance. Decide how you will repay your loan to avoid default in repayment.
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