It can be very risky for lenders when granting loans to people with a bad credit history and does not provide any collateral. It may seem illogical, but there is a reason behind the approval of these loans for bad credit.
If you are the borrower, this sounds like a sweet deal. No credit check plus no collateral is something every borrower dreams of. But remember there are always things to consider before you sign up to one. To meet the desired amount, both the lender and borrower have to compromise to come in to terms.
Here are some of the factors you need to consider before taking up your first loan for bad credit.
- Risk Factor – As much as possible lenders want to reduce the risk of losing large that is why there are different collateral that they want you to produce. But for an unsecured personal loan, they are forced to gamble. To minimize it they require a co-signer. The co-signer will agree to pay the remaining balance in case the original borrower goes into default. What if you don’t have a co-signer? There are still loans that don’t need a co-signer, but it will be of lower value. To widen your choices, it is better to bring a co-signer whether a trusted friend or a relative.
- Interest Rate – For non-collateral loans, the interest rate can be more than 2% to 3% above the normal bank rate. This is where the affordability becomes a factor. You have to consider whether you can pay it monthly or not. As said above, using a collateral or a co-signer will reduce your interest rate and provide a wider range of options regarding repayment schedules.
- Choosing The Right Lender – The internet is a big place, and you could get lost choosing from a pool of loan websites. By searching different companies, you can compare their services and make an informed decision. Once you have made up your mind be sure to make a last reputation check on the company name at the Better Business Bureau website. They provide a wide range of business and their validity.