How Bad Credit Loans Help (or hurt) You

Bad credit loans are loans that take a consumer's low credit rating into account when setting rates & terms. Lenders refer to loans that fall into this category as "subprime."

Your fico credit score decides the types of loans for which you qualify. Typically, scores under 600-620 are considered subprime. Certain lenders specialize in subprime, or bad credit loans. Others offer all types. In all cases, bad credit loans cost more than conventional loans, with much higher interest rates, higher down payments and higher loan origination fees.

Before applying for bad credit loans, know the facts to protect yourself.

Decide your need.

The first step in getting bad credit loans is to take a long look at your circumstances. Are you applying for the loan for a purpose that will simply worsen the credit problems that put you in the there in the first place? Is there any other way to fill or postpone your need? If you have current cash flow issues and existing high interest payments, getting more of the same makes it very hard to end the cycle. The best advice is to start by contacting a consumer debt counseling service or your creditors directly to try to work out a payment plan.

Credit problems often make people feel desperate, rushing into the first solution offered. Trust yourself and your ability to find other answers. Bad credit loans will be available now and in the future, so don't panic; stepping to the side of the anxiety allows previously unseen solutions to surface.

Shop around.

If your credit problems are in the past but exerting pressure on your scores now, bad credit loans may be the only ones available for 12-36 months, depending on how fast you rebuild your Fico score. Shop around extensively to compare rates and terms. Interest rates can vary by many points for the same credit score because different lenders have different targeted profit levels. Read ALL the fees, terms and conditions because these can vary by thousands of dollars from lender to lender. Understand your total cost before you agree to take the loan. Remember, your business is money for a lender, no matter what your credit score-you're still the customer.

Keep rate shopping within two weeks.

It's important when shopping around for any auto or home loan (bad credit auto loans included) to confine the shopping period to two weeks or less. That's because applying for new credit lowers credit scores, except for home or auto loans; in those cases, all applications (or inquiries) made within two weeks of the first are like one inquiry for score purposes. For example, if applying for an auto loan lowers your score two points, you could apply to 100 auto loan companies within two weeks, and it would only lower your score by those first couple of points.

Beware of scams.

Con artists prey on people who are scared about finances through ads and telephone calls, offering cheap bad credit loans for a fee. They may ask you for an "advance fee" of hundreds of dollars, and you'll never hear from them again. Always do your own research before applying for bad credit loans, rather than accepting offers by phone or ads. According to the FTC, about 95% of those scammed never report it, making it harder to crack down. Report these problems if they happen to you-you may prevent identity theft.