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Personal Loans for Bad Credit

[Nov 6, 2009.]

 

Does it really make sense for people to get personal loans if they have bad credit? Let's take a look at why borrowers should think long and hard before using these loans.

Loans with High Interest

Anytime a person with bad credit applies for a loan they are going to pay for it with a higher interest rate. That's because lenders view them as very high credit risks. The fact of the matter is if a person is already struggling with paying bills on time, has a low credit score, and has a lot of debt, a personal loan isn't going to solve all those problems.

Even people with good credit may be looking at paying high interest for an unsecured personal loan. People with bad credit may manage to get approved for an unsecured personal loan, but are likely to pay interest rates of 10% and up. Borrowers can be stuck paying on high-interest loans for many years.

Taking on More Debt

Anyone who already has a lot of debt, should hesitate before taking on new debt. Although the initial plan may be to use a personal loan to consolidate debt, having more credit available is an invitation to financial disaster for some people. Personal loans for bad credit are often advertised as a cure-all for financial troubles, but in many cases they just escalate existing problems.

Alternatives to Borrowing

Ultimately, taking out a personal loan may not be the best solution to your financial problems. Instead, focus on putting together a budget and strict debt repayment strategy to knock down balances on credit cards and other loans. Be willing to give up some of the goodies you currently enjoy, such as eating out, entertainment, or other luxuries.

Consider finding a second job to boost household income. Don't use the additional money to pay for frivolous expenses. The goal is to earn extra money to knock out debt and pay for necessities in your home: think food and shelter, not cable TV and movie rentals.

Personal Loan Comparisons

People who have changed their ways and are living on a strict budget may still decide to apply for a personal loan, even though they have bad credit. If this is the case, the first step should be to compare personal loan quotes from several lenders. It's important to compare interest rates, fees, and other terms of any loans being offered by lenders.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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