Like many consumers, John raised credit card debt with the assumption that he could in some way pay off. After just a few years, he had 15,000 dollars in credit card debt, a car loan and a mortgage. His household budget was razor-sharp and he could barely make his monthly payments. And then he was divorced from his job, it was not his fault; he was impaired. He assured that he paid his mortgage, but he fell behind in his other monthly payments. Soon he had a bad credit rating and collection agencies called.
If you are in John's situation, you must act quickly to get your household budget under control. Perhaps you have tried to negotiate with your credit card issuers and you have reduced costs. You need more help, and you are considering a personal loan. But can you get a personal loan if you have bad credit?
If you think you need a personal loan quickly and you have bad credit, you must be extremely careful. Here are some of your options.
Payday loans can provide fast short-term cash. Payday loans are unsecured loans for amounts up to $ 2000, which will usually be refunded on your next payday. In order to qualify you need a monthly income such as salaries from a job, social security, unemployment or even invalidity insurance. Your income must be deposited directly to a bank account that has been open for over sixty days.
Interest rates are extremely high (usually 500% in April) and when the loan is due, the lender will electronically withdraw the money from your bank account. If you do not have the money and can not repay the loan on time, you will be responsible for significant fees. Payday loans should never be used to pay off other debt.
Unsecured personal loans are available from banks and loan companies, and differ from payday loans in several ways. Loan amounts may be greater, up to 25,000 dollars or more, and repayment times may be as long as 60 months. Interest rates are lower than short-term payday loans but higher than secured loans.
For example, a secured loan such as a car loan or mortgage will cost you between zero percent (for some new car loans) and 8%. These prices vary with the economy; A decade ago, mortgage loans were 15%. An insecure personal loan usually costs between 15% and 20% or more, depending on your credit. If you have bad credit, you pay a higher interest rate.
Secure loans are a possibility if you have bad credit but you own a significant asset like a house or vehicle. To get a secured loan, you must place the asset as collateral and you sign a contract. If you are default on your loans, your lender will legally pay you access to your home or car.
Because the secured loan is behind something of value, interest rates are lower than unsecured loans. Even if you have bad credit, you can get a secure loan, such as a second mortgage or your own capital loan. The lender will examine your finances and review your credit history before you decide to give you a loan and decide how much interest to load. The better your credit, the lower you pay.
Let's say that despite your bad credit, you have paid your mortgage for ten years and have built up equity in your home. Your credit card debt amounts to $ 15,000. You can withdraw thirty-one other $ 15,000 mortgage and pay off your credit card debt. The interest rate on the second mortgage is 8%, much lower than the 26% you are probably charged by your credit card companies. Instead of having the minimum $ 500 payments each month, your payments on the second mortgage are $ 110 each month. Of course, you must be very careful because you have replaced unsecured debt to your credit card - for guaranteed debt. If you fail to make the payments on your second mortgage, you can face the foreclosure.
When in doubt, contact a qualified and professional staff consultant and always try to live within your means.