Submitted by Martin Martinez
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Bad credit loans seem to be a hot topic these days. In fact, if you need a bad credit loan, youre likely to find an overabundance of information.
Bad Credit Loan -- Lets Cut Through the Hype!
See if this sounds familiar. You need a loan. Maybe you want to buy a car, enroll in college, or take out a home improvement loan. Or perhaps youre a first time home buyer and youre looking for a mortgage. The problem is, youve got a bad credit history, and youre afraid you wont be able to find a lender.
But then you do a little research on bad credit loans and find that, lo and behold, there ARE loans for people with bad credit available! In fact, EVERYONE wants to give you a loan. Loans for cars, mortgage loans, student loans, personal loans, loans for just about anything you want. Not only loans, but credit cards too. Why, who would have ever thought is would be so easy to get a loan when your credit history is so dismal?
So, thats great news, right? RIGHT?
Lets just stop for a moment. Ask yourself Why is everyone so eager to extend credit to me when my credit history is so bad?
The question can be answered in two words -- HIGH RATES. Sure, you can get a bad credit loan easily enough. But youll pay through the nose when it comes to the interest rate.
So Whats the big deal about paying a little higher rate? you ask. Lets look at a few figures.
Suppose you want to buy a car. After looking long and hard, you find the perfect car for $20,000. So you apply for a car loan and get a loan with no trouble, but because of your poor credit, you have to pay 20% interest. On a 60 month loan, your monthly payments will be $529.88.
Now if your credit were very good, you might have gotten the same 60 month loan at an interest rate as low as 10%, with monthly payments of $424.94.
The bottom line is, over the life of the loan youll have paid an additional $6,296.40 in interest that you would NOT have paid if you had you gotten the loan at 10% interest. Your bad credit loan will have cost you $6,296 more FOR THE SAME CAR!
But if you think thats bad, take a look at a home mortgage loan.
Suppose you want to buy a $100,000 home and youre just thrilled to find a lender willing to give you a 30 year loan in spite of your bad credit. Hell charge you 12% interest, and your monthly payment will be $1,028.61.
If your credit had not been so bad, you could have gotten the loan for a rate closer to 9%. If your credit had been very good, you might have been charged only 6% interest and your monthly payment would have been $599.55.
The bottom line? That bad credit loan will have cost you (over the 30 year term) a staggering $154,461.60 MORE than you would have paid had you gotten a loan at the 6% rate.
No, this is NOT a typo. Your lender will pocket $154,461.60 in additional interest payments because you were charged a higher rate for a bad credit loan. Thats over 1 ½ times the cost of the house itself!
So why did he charge you the higher rate? Because he knows he can get it! After all, hes got you over a barrel. He knows (and you know) that you need a loan, but because of your bad credit no ones going to give you one at a low interest rate.
Do you see now why people are so eager to lend you money in spite of your bad credit? In fact, credit reporting companies make a fortune selling lenders the names of people who have bad credit. Those lenders know they can charge them high rates, and that if they need credit, they have no choice but to pay them.
So whats the solution? You may be thinking What choice do I have anyway? My credit is bad, I need a loan to get a house (or car, college education, or whatever) and theres just nothing I can do about it except find a lender willing to give me a loan at whatever interest rate I can get!
But consider for a moment whether you might be looking at the situation from a completely wrong angle. Rather than resign yourself to the situation, you should be thinking about repairing your credit.
Now if you just found the house of your dreams, you may have no choice but to act now before someone else buys it. But if you can wait a couple of months, its highly likely you can make some major improvement in your credit score and THEN look for a loan.
Maybe this isnt what you wanted to hear. After all, youre looking for a loan, NOT credit repair advice. But wouldnt it be worth it to postpone getting that house or that car if it would save you thousands, tens of thousands, or maybe even $150,000.00 or more over the long haul?
If youre thinking your bad credit history is something youre just stuck with, or that it will take years to improve, youre mistaken. Its often possible to make major improvements in your credit rating in just a few months, and in some cases in as little as 30 days!
Its not that difficult either. You basically have 2 options. You can hire a Credit Repair Agency or you can take the do it yourself approach.
If you decide to hire an agency, you can easily find one in your phone book or online. Just look for credit repair. However, it wont be cheap. Agencies usually charge from $2,500 to $5,000 or more to repair your credit. But thats still a bargain compared to how much youll be saving in the long run.
But if you think only a professional agency can fix your credit, think again! In spite of their high fees, they wont do anything for you that you cant easily do for yourself. If you can write a few letters, address, stamp, and mail them you can repair your own credit.
If you choose the do it yourself route (recommended) you can learn how by doing some online research. Unfortunately, along with all the good information youll find some misinformation as well. A better option is to find an authoritative book on credit repair and follow the advice therein.
In conclusion, you should seriously consider postponing your search for a bad credit loan. First spend a couple of months improving your credit rating. Then you can abandon the search altogether, and begin looking for a GOOD credit loan!
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