Bad credit loans seem to be a hot topic these days. In fact, if you need a bad credit loan, you’re likely to find an overabundance of information.
See if this sounds familiar. You need a loan. Maybe you want to buy a car, enroll in college, or take out a home improvement loan. Or perhaps you’re a first time home buyer and you’re looking for a mortgage. The problem is, you’ve got a bad credit history, and you’re afraid you won’t be able to find a lender.
But then you do a little research on bad credit loans and find that, lo and behold, there ARE loans for people with bad credit available! In fact, EVERYONE wants to give you a loan. Loans for cars, mortgage loans, student loans, personal loans, loans for just about anything you want. Not only loans, but credit cards too. Why, who would have ever thought is would be so easy to get a loan when your credit history is so dismal?
So, that’s great news, right? RIGHT?
Let’s just stop for a moment. Ask yourself “Why is everyone so eager to extend credit to me when my credit history is so bad?”
The question can be answered in two words — HIGH RATES. Sure, you can get a bad credit loan easily enough. But you’ll “pay through the nose” when it comes to the interest rate.
So “What’s the ‘big deal’ about paying a little higher rate?” you ask. Let’s look at a few figures.
Suppose you want to buy a car. After looking long and hard, you find the “perfect” car for $20,000. So you apply for a car loan and get a loan with no trouble, but because of your poor credit, you have to pay 20% interest. On a 60 month loan, your monthly payments will be $529.88.
Now if your credit were very good, you might have gotten the same 60 month loan at an interest rate as low as 10%, with monthly payments of $424.94.
The bottom line is, over the life of the loan you’ll have paid an additional $6,296.40 in interest that you would NOT have paid if you had you gotten the loan at 10% interest. Your bad credit loan will have cost you $6,296 more FOR THE SAME CAR!
But if you think that’s bad, take a look at a home mortgage loan.
Suppose you want to buy a $100,000 home and you’re just thrilled to find a lender willing to give you a 30 year loan in spite of your bad credit. He’ll charge you 12% interest, and your monthly payment will be $1,028.61.
If your credit had not been so bad, you could have gotten the loan for a rate closer to 9%. If your credit had been very good, you might have been charged only 6% interest and your monthly payment would have been $599.55.
The bottom line? That bad credit loan will have cost you (over the 30 year term) a staggering $154,461.60 MORE than you would have paid had you gotten a loan at the 6% rate.
No, this is NOT a typo. Your lender will pocket $154,461.60 in additional interest payments because you were charged a higher rate for a bad credit loan. That’s over 1