No one expects the unexpected. But it can happen, especially on the money front, when you’re landed with a hefty expense out of the blue.
If like many people you’re on a limited household budget, the solution lies in spreading the cost with a loan. However, this can be a problem if you have bad credit.
Some lenders, though, specialise in bad-credit loans. In this post, you can discover all you need to know about bad credit and the benefits of bad-credit loans if you find yourself in a financial emergency.
What Is a Financial Emergency?
Anything that results in an unforeseen expense or bill is a financial emergency, as opposed to a planned event like a wedding, for instance, when you have time to gradually set aside the money you need.
In January 2022, business news specialists US-based CNBC reported that more than half of Americans wouldn’t be able to meet a $1,000 emergency expense from savings.
Even with insurance, a financial emergency can be costly. You may have an insurance deductible, for example. This means you have to pay a certain amount yourself before your insurance covers the rest.
Situations where you could make the most of a bad-credit loan for a financial emergency include:
You Lose Your Job
Job loss and the resulting absence of a steady income is a common and deeply worrying problem. The effect on household cash flow can leave you struggling to meet regular expenses, let alone come up with a substantial amount to cover a financial emergency. And without a job, it’s likely to be much more difficult to get a loan, and potentially a lot more expensive.
You Go Through a Divorce
Divorce is common but how many of us plan ahead for the financial consequences? Even an uncontested divorce could cost thousands of dollars. If the marriage breakup is messy or complicated, the more expensive it’s likely to be. Besides the immediate legal fees, divorce can also have long-term financial repercussions resulting in a lower standard of living.
You Experience an Urgent Medical Problem
Any type of medical emergency is a distressing ordeal. It can also leave you with a financial headache. In the US, a trip to the emergency room costs $2,200 on average, according to a leading health insurance company. On top of that you may lose income as you take time off work to recover.
You Need Urgent Home Repairs
An unanticipated home repair is often a major expense. You’ll already be well aware of this if you’ve ever had to have a roof repaired or replaced. Or maybe your heating or plumbing system has broken down. Or your house electrics became a safety hazard and needed rewiring.
Your Car Breaks Down
Cars are often a necessity rather than a luxury, but they’re prone to breaking down, especially older models. Even if your car is in good shape, an accident could cause expensive problems. Unexpected car repair bills are a common financial emergency that can cost hundreds of dollars or more.
Your Home Is Hit by Extreme Weather
The US National Centers for Environmental Information says extreme weather events cost more than $2,593 billion a year. Besides flooding, other damage to property may result from wildfire, hurricanes, tornadoes, or tropical storms, depending on where you live in the world.
What Is Bad Credit?
Bad credit refers to a low credit score. Your credit rating is based on your credit history report. Credit history data is collected by credit reference agencies (CRAs) and updated every four to six weeks.
Lenders take credit scores into account when considering loan applications. If you have a good credit rating, there shouldn’t be a problem. You represent a minimal risk to the lender.
It’s a different story when you have a poor credit score (bad credit). Because you’re regarded as a greater risk, it can be more difficult to get a loan. And if you do, interest rates will invariably be higher.
That’s where lenders specialising in bad-credit loans come in.
What Is a Bad-Credit Loan?
Bad-credit loans are designed for individuals with a credit report that’s less than perfect.
A bad-credit loan works like any other type of borrowing. You get a certain amount of money up front and pay it back in monthly instalments that include the loan balance and interest.
You can use a bad-credit loan for almost any purpose but many people make the most of them to provide crucial funding to cover a financial emergency.
Taking on any new debt may damage your credit score temporarily, but a bad-credit loan can improve your credit status in the future as long as you make repayments on time and in full.
Types of Bad-Credit Loans
Bad-credit loans come in the form of secured loans, unsecured loans, or guarantor loans.
To get a secured loan, you need to put up collateral. This will be a valuable asset such as your home. You could lose it should you default on your loan repayments.
An unsecured (personal) loan requires no collateral, but interest rates tend to be higher.
With a guarantor loan, a close friend or a family member guarantees to pay the debt if you become unable to do so.
Should I Get an Emergency Payday Loan Instead of a Bad-Credit Loan?
As with a bad-credit loan, getting a payday loan to cover an emergency expense is easy. Payday lenders are quick to give loans to individuals with past financial difficulties that make borrowing more money difficult.
But is a payday loan your best option?
According to America’s Debt Help Organization, payday loans carry exorbitant interest rates and can ruin your credit. The organization also warns that payday lenders can be tough debt collectors.
Pew Charitable Trusts says payday loan fees cost 12 million Americans $9 billion in loan fees a year.
By definition, you never know when an unexpected expense is going to crop up. Unless you have a fair-sized savings pot, that much-needed money has to come from someplace else.
If you happen to have a poor credit score at the time, lenders in general are likely to give you the cold shoulder. And the last thing you need in a financial emergency is the additional frustration and worry as you fruitlessly trawl around for quick cash. Bad-credit loan providers, on the other hand, can help with same-day loan approval quickly followed by the money you urgently need. And a bad-credit loans comparison site streamlines the otherwise time-consuming process of searching through hundreds of lenders to find the loan that’s right for you.