It’s hard to get yourself enough financial backing to get on with your life when you are afflicted with a bad credit record. And even though there are a few options out there that you can advantage of, it’s often hard to bring yourself to trust lenders since they themselves may not trust you with the transaction. Take unsecured loans for example. Here, you do not put up any of your assets as collateral when asking for a loan. Obviously, it’s helpful on your part since there is less risk on your part. But then, these don’t really protect the interests of banks, credit unions and lending companies. As such, they impose large interests for their services. On top of that, they also have these disadvantages:
a. Limited loan amounts. Unsecured loans are basically uninsured. And despite the large interest rates, lenders still have very little guarantee that the people they spread wealth to will honor their obligations. As such, they keep the losses to a minimum. What that limit is varies from creditor to creditor. But they never seem to go over five figures. So if you need to borrow a substantial amount of money to make ends meet, it’s not the kind of loan you can have for your bad credit.
b. Lack of flexibility. Payment terms for an unsecured loan can span a few months to as long as 5 years, depending on the amount and the negotiated conditions. But unlike secured loans, they cannot be adjusted and lengthened according to a person’s capacity to pay. Again, this can be attributed to the fact that there are no back up assets on the line that the creditor can collect in the event that the person who loaned can’t meet his or her obligations. This is very inconvenient if in case you lose your job or get yourself or a family member hospitalized. How will you handle your expenditures with your dues?
c. Rigid policies. With an unsecured loan, you can only expect for credit unions and companies to take repayment protocols and agreements very seriously. Aside from wielding all the power, they are relentless when it comes to implementing punishments for missed payments. They could double interest rates or subpoena you, if there is a need. And if you have a bad credit history, you probably won’t get a word into the negotiation.
d. Grueling approval process. Given that there’s basically nothing to comply with or evaluate, one would assume that the approval process would just fly by and that it wouldn’t take that long before you get to walk away with a substantial amount of cash. That is certainly not the case with unsecured loans. Interviews will be held. Background checks will be done. And sometimes, a co-signer will be necessary for the loan amount to be approved.
As you can see, there are a lot to consider when it comes to applying for a personal loan when you have a bad credit rating. And although unsecured loans seem to be a good way to get financial backing, especially if you are just renting or have lost your home, there are other means you can explore to get your footing back in this economy.