How Much Should Bad Credit Unsecured Personal Loans Cost?

[Apr 21, 2010.]

 

One of the key aspects of the impending financial system reform legislation that is getting attention has to do with bad credit unsecured personal loans. Specifically, how costly should bad credit loan products be?

The implications of this new legislation, if in fact it does include strict oversight of mortgage, credit card, and so-called "other lenders," could be far-reaching, impacting everyone who has ever had bad credit or will have bad credit, but nonetheless need a personal loan.

Easy to Get Behind the Bad Credit 8-Ball

An unpaid, charged off credit card can drop your credit score about 100 points per credit card, while a bankruptcy or a foreclosure can drop your credit score by between 200 and 500 points, depending on...well, the credit bureaus don't much tell you what their scores depend on, do they?

Google has a secret sauce algorithm and so does Experian.

The point for many people, at this point, is that their credit score is in the toilet. They are walking around with a 550 hanging around their necks and they can't get any loans.

But they need loans. So they turn to "other loans" such as payday loans and bad credit online personal loans. These "other loans" generally tend to, guess what, charge high rates of interest and fees. And what lender wouldn't charge handily, making a loan to a person with a well-established history of not paying back loans?

It will be interesting to see whether the new consumer protection agency created by this legislation can protect a larger portion of borrowers from getting bad scores to begin with.

In the Meantime, Will Bad Credit Unsecured Personal Loans Still Be Available?

As the government and individual citizens attempt to resurrect some form of financial responsibility after two or three decades of incredible profligacy (albeit, by the same token, incredible growth), the Senators talking about making laws have a balancing act to perform.

Balancing the needs of middle and lower income people to have access to some form of credit, versus the need to prevent banks and other lenders from continually, unmercifully gouging the American consumer.

Lenders don't like to lose money, so they can't be expected to lend money to people who don't or can't pay their other debts at low interest rates. That is just not going to happen. Lenders must be allowed to make a profit from bad credit personal loans or else they won't make them.

At the same time, usury used to be a dastardly crime because it actually is quite wrong and immoral.

 

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.