While bad credit does limit your borrowing options, it may still be possible to find a loan with bad credit . However, the question remains, is a bad credit loan worth the disadvantages it carries?
When a lender approves a loan, they attach an interest rate based on your credit score. When your credit is low, a lender assumes that you are at greater risk of defaulting. To mitigate this risk, they increase your interest rate, thereby increasing the cost of your monthly payments as well. If you do default on the loan, a higher interest rate has allowed your lender to collect additional funds, offsetting the losses they incur.
Although the loan policy is logical, it certainly isn’t cheap. Signing up for a bad credit loan is sure to cost you more in the long run. Consider the following example:
Steve’s credit score is 770, ranking him among the top scores in the country. He recently bought a $400,000 home with a 30 year fixed mortgage. His credit score allowed him to secure the best interest rate on the market.
Across the street, Bill is attempting to buy a house that also requires a $400,000 loan. Despite the identical price, Bill’s credit score is a dismal 659. As a result, the bank will only approve Bill’s loan with a high interest rate attached. Over the next 30 years, Bill will pay over $650,000 more than Steve in accrued interest.
Before considering a bad credit loan, why not take steps to improve your financial stability? Creditrepair.com can help you pursue the better credit score you deserve, allowing you to pursue better interest rates in the process. Don’t settle for paying more money over the life of your loan. Play it smart and focus on credit repair first.