Personal Finance >
Managing Credit
Get a Widget for this title
RSS FeedAre personal loans for bad credit a good idea?
Results so far:
| Good Idea | 40% | 82 votes | Total: 204 votes | |
| Bad Idea | 60% | 122 votes |
Good Idea
Write now
Print
Invite a writer™
Add to FavoritesJust a few years ago, I would have voted a resounding "NO" on this question! The interest rates are much higher than someone with good credit would pay, almost all require collateral, and the terms are very restrictive. When taken together, not a great deal for any consumer.
However, our economy has changed so much that there is a definite need for this type of loan. Many people are laid off and facing circumstances much more dire than paying high interest rates. Nowadays, many families struggle just to put food on the table for their children, and a lot of extended families are in no position to help. Getting a personal loan might mean the difference between paying this month's rent or being evicted.
Of course, it still pays to be as prudent as possible and check with a few sources before accepting a loan. The important things to know are: interest rate, terms (how long do you have to pay it back,)and if there are pre-payment penalties (penalties for paying it back early.)
There are small loan companies all over the country (such as CitiFinancial, etc-generally in strip shopping centers)in the business of giving small personal loans, who understand credit blips and who you can talk to about a loan. These lenders generally will overlook your credit if you have something of value to use for collateral- a car that's paid for (which they can hold the title on until you pay them back), jewelry, any sort of collection that is valuable, etc. The interest rates will be steep, so be sure to ask if there are any pre-payment penalties so that you can pay it back as quickly as you can to save money without paying an extra fee. These lenders are good ones to establish a relationship with, as lower rates are generally offered for repeat customers.
If you can get by with a small amount of money, your small local bank or credit union might be able to help. If you already have an account with them and know the people there, that should also work in your favor. With credit issues, they most likely won't be able to help with a large sum, but most managers will have a discretionary amount they are allowed to decide upon.
I absolutely do not recommend so-called "Payday Loans" because the fees they charge you are ridiculous- you often will pay 30% or more, and they will only "loan" you a few hundred dollars. You might think they are doing you a favor when they push back the date your payment is due, until you realize they are charging you even more to do that. These places should be avoided at all costs! A good alternative to these loans is your local pawn shop, if you have something of value. They give you cash for the items and hold them until you pay back the loan. But do be aware of the deadline when you need to have it paid off, or you can risk losing your collateral.
When you need money and your credit has taken a hit, be cautious when applying for any loan. Read the fine print, ask questions, and don't be afraid to walk away if you can't live with the terms.
Learn more about this author, Denise Gabbard.
Click here to send this author comments or questions.
Bad Idea
If you have bad credit, chances are it's a result of poor spending habits. Overuse of credit cards, carrying too much credit card debt from month to month, and compulsion shopping are the principle villains that cause people to have credit problems.
Before you take on a personal loan to pay down that credit balance, it's a wise move to do a comprehensive assessment of your spending habits. Don't forget, that loan has to be repaid, and if you don't adjust your spending habits, you could end up with more bad credit, along with the loan to be repaid as well. If that happens, your credit rating could take a fatal blow. The key phrase to remember here is, "when you're in a hole, stop digging." Taking on more debt to pay off debt, without changing the way you handle your finances risks putting you deeper into that hole.
The time to solve debt problems is before they become problems. If you are only a mild debt situation; that is you can make your monthly payments without putting yourself in financial jeopardy, there are a few things you can do to keep from slipping into a crisis.
Get rid of all those extra credit cards. Two, or at most three, should be the maximum number of credit cards for anyone. Even better, one credit card and a debit card - reserving the credit card for large items (that are necessary), and using the debit card or cash for everything else. Avoid compulsion buying. If you don't really need it, don't buy it. Pay off credit card balances each month. This can help you avoid the exorbitant interest rates most credit card companies charge. Look for no-fee credit cards. Some banks offer these to their good customers.
If you've unfortunately spent yourself into a hole, before you go the personal loan route, try to negotiate a payment schedule with your creditors. It's important if you're successful in doing this that you don't take on any unnecessary new debt. In extreme cases, consider consolidating all your credit card debt on one card; some major companies offer this program, and then try to negotiate a monthly payment schedule that you can afford.
Debt counseling services are available in most places, and it's a wise idea to look at this option before getting a personal loan. They can sometimes help you get relief from some of your creditors without having to get a loan.
In each case, you definitely need to look at your spending habits. Spend less, charge even less (or pay your bills right away), and you can avoid debt problems in the first place.
Taking out a personal loan to solve debt problems is a last resort, and if at all possible, one you want to avoid.
Learn more about this author, Charles Ray.
Click here to send this author comments or questions.
