When you see the words “Bad Credit” tagged next to your name when you tried to secure a personal loan from a traditional banking corporation, have you ever wondered what it actually means? If you are wondering why you are tagged as “Bad Credit” and why your loan application was subsequently denied and declined for approval, here are some facts you might want to know.
The term “Bad Credit” or “bad creditor” is given to those who defaulted on a loan or those who failed to make timely payments on certain financial obligations. With a bad rating, securing cash loans without placing valuable properties such as cars and houses as collaterals becomes almost impossible with regular lending companies. Most traditional lending companies, such as banks, usually require good rating or collateral before they grant you a loan. In other words, your credit worthiness is the major requirement for bank loans.
Bad Credit Loans Defined
With the current economic situation, millions of Americans have suffered from poor credit rating. Many have lost their jobs, and have also defaulted on their loans and mortgages. Since the recession, the demand for financial assistance has risen, thus the birth of online bad credit loans.
Online bad credit loans are designed for individuals that were considered Bad Creditors by regular lending organizations due to their delinquency in their billing payments and due to having no prior payment history at all.
With bad credit loans, no background check is being made regarding the payment history and paying capacity of potential borrowers, thus making the application faster and easier to access. What made it more convenient and preferred than other types of loans is that you can apply for one online. A search online will reveal lenders ready to meet your cash demands.
However, since generally these online lenders do not require you to have and declare a collateral property and no background check is actually made prior to the approval of such bad credit loans, there is a greater risk for these borrowers to be faced with higher interest rates as compared to the other registered banking corporations.
In addition, it is imperative to bear in mind that most of such bad credit loans only have short term payment period, ranging from several days to a few months. There are three types or forms of bad credit loans; payday, cash advance and installment loans. Knowing the differences between these three forms will help you determine what particular type of payment will be most convenient for you.
With payday advances, as based on the term itself, the first initial payment period will be on the borrower’s next payday. Moreover, while some bad credit loans have a repayment period of 15-30 days, some online credit lenders offer a maximum repayment period of four payday periods or 60 days.
In comparison, the second form of bad credit loans called cash advances is almost similar to payday advances. Most of the time, the terms and conditions of these first two bad credit loans can be interchanged. The most noticeable difference between the two is that cash advances can be availed a few days or a week before the next payday of the borrower and they need to be immediately paid back within the period of a week or two.
Lastly, if you are specifically searching for smaller monthly payment amount but longer payment period, you may want to choose the installment loans that are paid back in an installment basis within a certain period of time.
In conclusion, when you find yourself in need of emergency funds and there is a greater chance that you will not be approved of availing a personal cash loan through a regular banking institution, then you might want to consider having the option to secure online bad credit loans, which are available right to your door step within the next 24 hours.