Basically, a loan for bad credit is simply a loan designed to be marketed and sold to people who have bad credit scores. There are a few different kinds that are available to people with poor credit, but the most common loans are either from payday loan companies or title loan companies. Normal banks do not offer personal loans for bad credit simply because it is too risky for them. Default rates are high, and as such a bank is generally not willing to take on that risk. However, payday loan and title loan companies are willing to take that risk – they just charge a lot more for doing so.
So how much does a loan for bad credit cost? The most simple answer is, well simple – A LOT! These loans can cost around 475% APR, and that’s if you pay it back on time. Anyone that says these loans are cheap is basically lying. However, before you dismiss them completely, make sure you understand how that 475% interest rates is calculated. Remember that payday loans are very short-term in nature, meaning that you should be paying them back before your next paycheck, which can be in even as little as two weeks for most people. This effectively makes the annual interest rate (or APR) extremely high, but it does not mean that you have to pay $2000 in order to take out a simple $500 loan. What it means is that for a $1000 loan, you will pay $173 in fees to borrow the money for two weeks. If you take out a 1500 loan, then you would pay around $260 in fees. So, you end up paying around 17-20% of the money you borrow, and do so in as little as two weeks.
So Why Are Such Loans Bad Credit Available In The First Place?
Bad credit loans are available simply because there is a very high demand for them. So, even though the banks are not willing to extend financing to someone in a credit crunch, other companies are willing to take on that risk in order to also potentially reap the rewards.
So yes, loans for people with bad credit are available, they are just very expensive, and you won’t be taking one out at your local bank or credit union anytime soon. However, just because they are available does not mean that they are cheap, so don’t listen to all the other websites that will try to convince you that ‘loans FOR bad credit’ are different than ‘bad credit loans’, and are not as expensive (yes, I actually read one fairly big website telling it’s customers that there was a difference in these loans). The bottom line is that they are very expensive and should really only be used in times of urgent need.