Bad Credit Personal Loans: Are They Ever a Good Idea?

[Oct 22, 2009.]

 

Getting a personal loan with bad credit is not easy, never has been, and never will be. Why? Because making a personal loan to a person with bad credit is not easy for the lender. It really is that simple.

However, critics in Congress and elsewhere that regularly rip into lenders who make personal loans to people with bad credit are missing an important point: people with bad credit want loans. And personal loans, such as online personal loans, are one of the last options available to the bad credit crowd.

That being said, it is essential to never take out an unsecured personal loan lightly. Here are three important considerations when thinking about taking out a bad credit personal loan:

1. Personal Loan Payback Terms

The interest rates on bad credit personal loans are rarely below 15 percent, and often more in the range of 25 percent. If that sounds exorbitant, though, consider that interest rates are customarily expressed in annual terms. Meaning that 25 percent interest does not necessarily equate to $75 on a $300 loan.

With a shorter term personal loan, it is sometimes more instructive to think of the interest rate as a "fee." This way, a rational decision can be made as to what the cost of the loan is.

The real "devil in the details" of a bad bad credit personal loan is often not the interest rate, but the payback terms of the loan. Possible devilish details include inflexible repayment schedules and heavy penalties for missing payments, no matter what the reason for the missed payment is.

Always carefully scrutinize the payback terms of a bad credit unsecured personal loan.

2. Purpose-Driven Personal Loans

The best reason to use an unsecured personal loan is to do something good with that money. Especially if it's a bad credit personal loan, this needs to be really be worth it in a grander sense.

Starting a business, debt consolidation, and paying taxes are three legitimate reasons for taking out a bad credit personal loan, even if the interest rate isn't excellent.

Other reasons, not to be named, are not such good reasons.

3. The Person Taking Out a Bad Credit Personal Loan

Number three, but really number one, it's necessary to take a hard look in the the mirror before taking out a bad credit personal loan. Self-evaluating for personal responsibility, income potential, even emotional state is the key to getting a good bad credit personal loan that can help improve life long-term.

Failing to complete this last step is preparing to fail at getting a good bad credit personal loan.

 

About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.