subject: Adverse Credit Loans – 2 Risks You Need to Be Aware of Before You Apply [print this page] Adverse Credit Loans 2 Risks You Need to Be Aware of Before You Apply
Bad credit ratings occur when we fail to make timely payments on our debts or loans. Our payment history makes up 35% of our credit score and so it carries the most weight of all the factors and as a result this gets reflected in your credit history and passed on to your credit rating.
Having adverse or bad credit makes you appear high risk to lenders who review your credit report and determine whether or not to loan you money.
If you're in this situation, your only option might be to take out a bad or adverse credit loan.
Types of Adverse Credit Loans
There are two types of adverse credit loans available, secured and unsecured.
Secured Loans
A secured bad credit loan is one that is secured by an asset as collateral for the loan.
You can use your property to guarantee the secured loan, but other factors still might affect the amount you can borrow.
Unsecured Loans
Unsecured credit loans are much harder to come by.
Sub Prime lenders have, in the past given out unsecured bad credit loans, but given the current economy this practice has been tightened up due to the high risk of the borrowers.
2 Big Risks
Bankruptcy
The biggest risk you face with adverse credit loans is bankruptcy. Essentially what this means is that you can no longer meet your obligations to your creditors and as a result your assets are then liquidated to repay some of your debts. Once that's done the remaining debt is discharged and the note is added to your credit file and will remain there for 7 years.
Having a bankruptcy note on your credit report makes it very difficult to get approved for loans because lenders think you're unreliable and won't make timely payments on your debts. If you're in this situation the best way to slowly dig yourself out is to get a secured credit card and make slow and steady progress.
Foreclosure
The other major risk that comes with adverse credit loans is foreclosure.
What this means is that as a home owner you have been unable to meet your financial obligations to the bank with regular payments and as a result the bank takes back your house. A foreclosure stays on your credit report for 7 years and is one of the worst entries that you can have on record.
It's true that lending companies took advantage of borrowers; however you still need to do your research when looking at taking out a bad credit loan.
The best thing you can do is try and slowly repair your credit. I want to be real with you. It is very unlikely that you will significantly improve your credit rating in thirty days as some people promise. However, everyone's situation is different. In some cases you might only need minor tweaking and others will need more work.
Either way you need to be aware of the dangers associated with bad credit loans before you go down that road.
