Loans for bad credit and why you should avoid them | Refresh Financial

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Loans for bad credit and why you should avoid them

loans for bad credit

When you see advertising for Loans for Bad Credit, you need to ask yourself, “Is this too good to be true?” The answer is probably yes. There are very few lenders who will approve people for upfront loans when their credit is bad. Why? Well, a bad credit score is usually the result of making late payments on a previous loan, or not making repayments at all, so legitimate lenders will be very cautious about lending more money to someone with a bad credit score.

If you do find someone willing to provide you with an upfront loan, be aware of these pitfalls that you might find yourself falling into.

Pitfalls of loans for bad credit

  • You will pay very high interest rates. If you can find someone willing to lend money to you, and you have bad credit, it is going to come with incredibly high interest rates, sometimes as high as 50%. To put that into perspective, if you borrowed $2000 at an interest rate of 49.99%, you will be paying almost $3,500 in interest on top of the $2000 you borrowed originally!
  • You might end up in more debt than you started with. Often, people borrow money at very high interest rates when they are facing an emergency cash flow situation. The problem here is that it can then be very difficult to pay back what has been borrowed, and so starts a cycle of borrowing and spending until the hole has become so big, it’s almost impossible to crawl out of.
  • Your credit score could end up being damaged. In many cases, these loan providers do not properly report positive payments to the credit bureaus, but you can be sure that if you miss repayments, they will. If you miss multiple payments, it is likely the loan would be sent to a collection agency which will make your credit score plummet.
  • In some cases, a seemingly legitimate offer can be a scam in disguise. If lenders are offering you money up front, and they do not seem concerned about your credit score, or don’t even check it, be warned that this might be a scam – people trying to capitalize on your need for money by trying to get your personal information.

What other options are there?

Have you heard about credit builder loans? A credit builder loan will help to build your credit score, and there’s no risk of going into debt. With a credit builder loan, you make payments towards the loan amount before receiving the money, paying a reasonable amount of interest. Every positive payment is reported to the credit bureaus, therefore increasing your credit score. And if you find you can no longer afford the payments, you can cancel for no fee, and take out the money you have paid into the program so far!

In conclusion, if you see lenders offering loans for bad credit, where money is provided up front, beware! It may not be what it seems, and you may find yourself in financial trouble as a result.

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