False and true myths

Bad Credit Loan Myths Debunked

Have you heard a lot of bad things about bad credit loans? Well, some of these things may be true, but many of them are myths. Lets take a look at a few of the bigger myths surrounding bad credit loans and find out why they are not true.

Bad credit loans have a big stigma surrounding them. Much of this is earned, but if they were not useful, they would not be around. That means there must be something good about these loans and it also means that not all of the myths are true. Let’s take a look at some of these myths and debunk them.

You Have To Be Desperate To Take A Bad Credit Loan

The misconception is that only people in dire financial circumstances would take out a bad credit loan. This is simply not the case.

In fact, there are many people that are not having financial problems but have bad credit. They may have had hard times in the past or just made some bad decisions and they find themselves well in good financial condition, but with bad credit. In these circumstances even financially stable people may need to take out a bad credit loan to pay for a home improvement, a new automobile or medical expenses.

Some will even use a bad credit loan to improve their credit. Sounds weird, but a bad credit consolidation loan, for example, might be used to pay off credit cards. Once these cards are paid off, credit utilization drops and credit scores rise.

Bad Credit Loans Have Unreasonable Interest Rates

Yes, bad credit loans come with higher interest rates than those designed for good credit. This only makes sense however because bad credit comes with risk. One does not get bad credit without making some sort of financial mistake. Thus for a lender to take on a risk, they need higher compensation to make up for the borrowers that will inevitably default.

All that being said, some bad credit lenders charge reasonable interest rates and others try to gouge the consumer. This is why it is so important to shop around for a loan, even with bad credit. There is almost always another option to consider.

A Bad Credit Loan Will Make Your Credit Score Worse

A loan for bad credit is still a loan. If you take one out and make your payments on time, it will positively impact your credit score. That is, of course, as long as the lender reports your positive credit history to the bureaus. Not all do.

If improving your credit is a concern, you should ask your lender if they report to the bureaus and how often. Ideally, they should report monthly. In any case, as long as you make your payments, these loans will not hurt your credit.

All Bad Credit Loans Are Predatory

Yes, there are bad apples in this industry, but this goes with all industries. Whenever there is a chance for a company to make a large profit they will seize the opportunity and some get greedy.

As long as you shop around for a good lender, you can usually find a bad credit lender that is not in it to squeeze every penny out of you or trick you into an unreasonable commitment. It is up to the borrower to do their research however, which is why it is important to get multiple quotes.

Summing It Up

As you can see, there are a lot of myths surrounding the bad credit lending industry. While not all of the companies involved in this business are angels, this type of lending serves a purpose and not all of the myths are true.

Posted by
James

James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.