When it comes to getting a loan, there are good loans and there are bad loans. This is particularly true for people with bad credit scores, as lenders will try and take advantage of your situation. If you are currently looking for a loan outside of a bank because of your credit rating, we have a short list of the types of loans you may want to avoid. While not every lender for these types of loans is out to get you, more often than not these loans are not your best option.
The first type of loan you should try to avoid is called a payday loan. A payday loan is just how it sounds – a loan that you get until your next payday. These types of loans are meant to be for relatively small amounts over a short period of time. However, since these loans are being given out to people with bad credit ratings, and because they are over such a short period of time, the interest rates can be very, very high. This means that even though you are borrowing a small amount, you could end up paying back a lot more. If you are in a hard financial time, you probably don’t need that burden weighing over your head. The only time we suggest you consider getting a payday loan is if you have no other good options, and you have planned it out so that you are sure you can meet your payments. Otherwise, we recommend looking elsewhere for your bad credit loan.
The next type of loan that you should avoid if you can is a guarantor loan. These loans themselves are not terrible, however. With a guarantor loan, you ask someone else to sign the loan agreement for you, someone with a better credit rating. You can then get a loan at a reasonable rate, and still make all of the payments yourself. The only time your guarantor has to get involved after the initial paperwork is if you fail to meet your repayments. At this point the responsibility of the loan would shift to the guarantor, and they would need to make the payments. And this is where the problem lies. A guarantor can usually only be a close family member. Putting money between two people can put a strain on a relationship. And if you fail to make your payments, you are risking damaging what was once a good relationship. This is a unique considering you need to think about when going after a guarantor loan.
Lastly, we suggest you don’t get a doorstep loan either. A doorstep loan is essentially a payday loan, but it is at least a little better. With this type of loan, someone from the lender will conduct all of the transactions right from your home. They will come to deliver the loan, then come back to pick up the payments. This saves you the time and hassle from having to do it yourself. On top of that, these agents can discuss your finances with you if you are having any issues. It is a personal touch that draws many people in to getting a doorstep loan. Remember that they are essentially payday loans though, so you should only get one if again, you are certain that you can pay it back on time.
It is unfortunate that so many lending companies try to take advantage of people when they are having a hard time. We hope that this article was able to shed a little bit of light on which types of loans that you should avoid so that when you start you search, you can make your life a little easier.