Finance

Making the Most of Bad-Credit Loans for Financial Emergencies

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

Final Words 

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.

Leave a Comment