Bad credit loans come with high interest rates and short repayment period, which is why these loans are often difficult to repay. If you borrow as per your affordability, you will not fall behind repayments. Many borrowers face difficulty paying these loans as they borrow as per their credit needs, not as per their capacity.
Very bad credit loans with no guarantor, no broker & no fees from direct lender can help you finance your unforeseen expenses, but a wrong loan can tie you with a debt web. People blame high interest rates while being suffered from inability to pay off the debt, but the significant reason for being behind repayments is borrowing beyond affordability. However, there are other reasons that throw you in a permanent debt spiral. Look out for the following warning signs when you apply for a bad credit loan.
Outrageously high APRs
Poor credit history shuts you out of borrowing money from banks. As a result, you turn to a direct lender. Though they follow lenient terms and conditions, you are likely to end up paying high interest rates due to higher possibility of default. However, it does not mean that the lender will charge ridiculously high interest rates. It never gives them a chance to exploit you, but predatory lenders charge very high APRs.
If you compare them, you will find that they are charging over four times or even more. For instance, if you borrow a bad credit loan with an interest rate of £15 per £100 borrowed, it may seem affordable to you, but the APR will be 391%.
When you take out a very bad credit loan, you must do enough online research to find out a lender that charges affordable APRs. It is important to consider APR as it determines the total cost of your loan. It gives you an idea how much you will pay to take out a loan. Do not get confused with interest rate and APR. The former is the rate that a lender charges for borrowing the principal. However, the latter includes all types of fees that you will pay. So make sure that you watch out for both the interest rate and the APR.
They do not look over your repayment capacity
Very bad credit loans trickle fancy to borrowers as they run soft inquiries, but there is a difference between no credit check and no repayment check. Some lenders sign off on your loan application without going through your income statement. You get what you quote. This sounds good, right? Wait, do not throw caution to the wind. This is where you are likely to fall in a debt trap.
If you borrow money without analysing your repayment capacity, you will end up paying late payment fees and rolling over the loan. In the end, you will fall in debt. A reliable lender will always look over your income statement to estimate your networth that serves as a basis for disbursal limit. What you quote in the form is not worth considering, but what you can afford is important to consider.
Such lenders will let you now the amount they deserve to borrow and then you will have to give your consent. Once you sign the agreement, you will get money. This entire procedure may take a couple of hours, but at least there is surety that you will not fall in debt.
Loan offers prove to be very expensive as they involve high fees. Sometimes lenders do not disclose all fees included, so before sealing the deal, you must confirm that you are not going to pay any hidden fee. Make sure that you peruse the agreement and clear your doubts if any. If you find any sign of hidden fees, you can back out and move onto the other lender.
Poor or Ambiguous customer reviews
Before you take the plunge, you should look at reviews on lenders’ sites. The sites may have either positive or ambiguous reviews that may baffle you. The best way to know about the company’s loan products is visiting its social media page. You will find true experience of users. You should also ask your friends and family for referrals.