5 Types of “Bad” Credit Loans & When You Should Get One – Our Guide
February 27, 2020Have you ever heard of a bad credit loan? Sounds suspicious, doesn’t it? However, in reality, it is quite helpful. If you ever find yourself in need of a loan but have a less-than-optimal credit history, an ordinary investment may be out of the question. Although you will still get a loan, it comes with a higher interest rate, and you have to pit something you own (such as your car) against the loan. If you fail to pay, your vehicle will be taken away. So, when should you consider getting a bad credit loan?
“Bad” Credit Loans
If you’re looking to borrow a few ten thousand Rand but have been rejected by street lenders, don’t fret. For a small cash need, a credit card will suffice. You can use a credit card checking service to determine what card you will receive. Even if you start with a bad credit loan, that doesn’t mean that it will stay that way forever. If you manage it well, you will be able to improve your credit score and qualify for better loans in the future.
Paying off Debts with “Bad” Credit Loan
If you have many existing debts you want to pay off, it may be a good idea to get one single bad credit loan. However, you do so only if you can find a low-interest loan. Be aware that your old loans may have early repayment penalties as well. If you want to do this, consider talking to the professionals at an independent debt charity so that you can receive guidance.
Below, you will read more about five types of credit loans generally recognized to be “bad.” Remember— although some types of credit loans aren’t optimal, they may be necessary for keeping you afloat during difficult times. Let’s take a look at each one and when you should consider them.
The Five Types of Bad Credit Loans:
1 – Personal Loans
Personal loans are the most common type of loans. If you’re looking to borrow up to R30,000 for seven years or less, personal loans may be for you. Interest rates are usually fixed, so you know what you’re paying for.
2 – Guarantor Loans
Guarantor loans work almost the same way as personal loans. However, it involves an agreement with a third party, usually a friend or family member. This third party person is your guarantor, making sure that the debt is repaid. If you fail to pay back what you owe, the guarantor will be responsible. This will probably be the only choice available to you if your credit history is horrible.
3 – Homeowner Loans
Although this type of loan allows you to borrow a lot of money, you will be placing your house against the loan. This means that if you fail to pay, your home will be given to the lender. Interest rates for this type of loan can fluctuate, and you can repay for up to 25 years.
4 – Installments Loans
This is similar to a guarantor loan or a personal loan, as you pay back in instalments over time.
5 – Logbook Loans
This is similar to the homeowner loan, except that now you secure the loan with your car instead. If you fail to repay, your car will be taken.
With all these types of loans, you’re well on your way to borrowing money even with a bad credit history. Remember— manage your loans well, for in doing so, you will improve your credit rating. Improved scores mean better loan options, which is what you want on your journey to financial savviness!
If you’re in South Africa and are looking for bad credit loans, get in touch with us to see how we can help.