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Bad Credit Personal Loans for People Who Recently Had Good Credit

[Feb 23, 2010.]


For people who have had good credit in the past, but for whom the past few years have been disastrous credit-wise, it's worth wondering whether personal loan interest rates for this brand of bad credit borrower should be much lower than for people who have never shown a good credit history.

Bad Economy Has Ruined a Lot of Credit Scores

What some lenders forget--and other lenders do not seem to understand--is that without an income, anyone's credit score is going to tank because they have no way to pay back the debts they have incurred.

Take the example of a mortgage broker with a college degree who was making $100,000 or more per year from 2001 until 2006. This individual had enough income to incur significant debt without worrying too much about it--several cars, a house or two, and all the rest.

Then, when his income takes a nosedive, those debts go sour in a hurry. It's basic math.

Sooner rather than later, this person--who for all intents and purposes was a high-achiever up until now in terms of making money--finds himself in the situation of being a bad credit borrower...needing a bad credit loan.

Different Money Sources Coming Into the Bad Credit Personal Loan Picture

The biggest trend in personal lending right now is the alternate sources of financing that are emerging. Money is available from places like Chinese banks, self-funded financial firms, multinational corporations, and even individual Americans through the Internet on sites like Prosper.com.

This is not to say that bad credit personal loans at attractive interest rates are easy to find. Nevertheless, the preponderance of sources for small, unsecured personal loans signifies that if borrower incomes do improve, there are people willing to lend money to people who promise to pay it back and, more importantly, have the ability to pay it back.

Right now, more than anything, credit markets are suffering from doubt that many people--maybe even most people--will not make enough money, maybe even not live long enough, to pay back all the debt they already do have. So why pile on more? Why throw good money after bad?

This attitude makes every bad credit personal loan a high risk endeavor. Even for people who have a good history except for the past few years, high risk loans are not cheap--but could get cheaper fast if the job market improves.


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.

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