Bad Credit Loans as the Shortest Way to Bankruptcy
Applying for a bad credit loan can be a good idea if you need short-term financing for emergency expenses. The fact that creditors offer high interest rates means that these loans are risky and may aggravate your financial situation and lead to foreclosure or bankruptcy. This is especially true if you have multiple debts, low or seasonal income, and hefty bills to pay.
There are some advantages to consider, and one is that timely payments help build or rebuild your score. Many issuers also advertise fast approval and no credit checks. Borrowers are offered both fixed and floating rates which gives them a degree of flexibility.
Some people resort to bad credit loans to repay high interest credit cards and debt. This works only if the new loan features a competitive interest rate that lowers the monthly payments.
Downsides, Risks, and Options
Most financial institutions are weary of offering loans to borrowers with compromised credit. This means that their borrowing options are more limited, and they go with unsecured or subprime lenders. Lenders for people with bad credit can be found throughout Canada – in Vancouver, Toronto, Winnipeg, Montreal, Edmonton, and other cities. Predatory loan providers use targeting and steering practices and forced arbitration and charge abusive interest and prepayment penalties. They often sell other financial products (for example, insurance policies) that increase the cost of borrowing. Unsecured providers also charge excessive fees and points. In some cases, the fees amount to 3 – 5 percent of the amount borrowed. Thus, if you borrow $5,000, you may pay $250 in fees. A loan for people with bad credit of $15,000 will cost you $750 in fees, and this is in addition to what you pay in interest charges. At some point, the monthly payments become unaffordable, and borrowers are about to default. There are different options to consider in this case, including debt settlement, counseling, and bankruptcy. Debt settlement is one option to explore, and big banks such as the Bank of Montreal, TD Bank, and CIBC are a good choice because they offer the full array of financial products. They maintain branches and offices in small towns and big cities such as Toronto Ontario, Calgary Alberta, Ottawa Ontario, Vancouver British Columbia and so on. The problem is that borrowers with poor credit are considered risky, and their application for a debt consolidation loan can be turned down. Consumer proposal and credit counseling are two other options for debtors. Credit counseling aims to educate borrowers about the risks associated with excessive borrowing. Bankruptcy is a last resort, but bad credit loans, excessive interest charges, and large monthly payments are often the shortest way to bankruptcy.
While most people fear the prospect of bankruptcy, it is an option for some people. Bankruptcy is the good option for borrowers who have dischargeable debts. There are non-dischargeable debts such as court judgments, recent debts, income taxes, alimony and child support, some types of student loans, and others. Borrowers are allowed to keep exempt property, but the types of property vary in British Columbia, Manitoba, Quebec, Newfoundland and Labrador, Prince Edward Island, and other provinces and territories in Canada. While bankruptcy may be a solution to your financial problems, taking out a bad credit loan can be a contributing factor that causes a significant drop in your credit score and affects your ability to manage excessive debt. If you need a loan and have poor credit, make sure you choose a reputable provider and avoid risky and non-bank lenders that advertise instant approval and no credit checks. They make snap judgments and offer very high interest rates.