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Bad Credit Loan Drawbacks That Nobody Talks About
  • admin
  • March 7, 2023

Bad Credit Loan Drawbacks That Nobody Talks About

A good credit score gives you access to premium credit cards, better interest rates and affordable loan products, but if the opposite is the reality, you will miss out on these good deals. Regardless of your financial situation, you might need to borrow money at one point in life, and at that time, your credit score can make it or break it.

Although a lot of lenders are out there to accept your applications from bad credit people, it is always suggested that your credit report is up to scratch. Doing up your credit file is more than plain luck. You will need to understand how much your credit score impacts your life.

When you apply for loans for bad credit in Ireland, you are often told that they carry very high-interest rates. You might struggle with payments, and worse, you can fall into debt. Well, if you manage your debt responsibly, you will stay afloat without any problems.

But there are some other underlying drawbacks that you might not be aware of.

  • You may have more than you expected

Mainstream lenders will not sign off on your application because you are too big of a risk for them. As you will have restricted options, you will likely end up borrowing money at a higher interest rate.

If you are taking out payday loans, it is suggested that you do not avoid reading the fine print. When you are in a bind, these loans can provide you with an instant injection of cash. On the surface, the deal could seem very affordable, but the APR can be up to 400% deep down.

Not only are reputable institutions out of your reach, but the interest rate will proportionately increase as your credit score falls. For instance, someone with 650 points, according to Experian, will likely get money at 4.5%, as compared to one with 500 who gets money at 5.9%.

If you miss payments, accrued interest and late payment fees will add up to the cost of the debt. If the cycle continues, you will pay up to 400%, for example, as interest for the whole of the year.

1.  Your insurance premiums will be high

It is the likelihood that you do not know the fact that insurance companies collect your credit scoring data. The premium amount to be imposed on you is determined by taking your spending habits under advisement.

However, it does not mean that your premium will automatically be raised in the event of a dip in your credit point, nor does it mean that your policy will be terminated. A poor credit rate means you will struggle to qualify for the lower premium.

When you buy insurance, your credit rating can influence the decision of a company to calculate the premium amount. The higher the score, the lower the premium will be.

2.  You may miss out on career opportunities

A lot of employers take into account your credit score to decide if they should hire you or, for that matter, promote you. This is true when the job involves a lot of financial difficulties. Of course, an employer will keep you in the loop before doing so, as they will need your signed permission.

This will let them know your open credit lines, outstanding balances, and the details of other debts like auto loans, student loans, small private loans in Ireland, and foreclosures into the bargain.

3.  Renting will be harder

According to Experian, you need 620 credit points to rent out a flat. Your landlord will be sceptical about your repaying capacity if your credit report is not up to mark. Chances are they will allow you to rent out if the default and late payments are too old.

Some landlords are a bit stricter. They would accept you as a tenant when your credit score is 700 or above. If you have a bad credit score, you will need a co-signer who will promise to pay the rent when you miss out or put down a higher security deposit.

Even though it is hard to rent out a flat, it is not impossible.

4.  You cannot enjoy rewards on your credit cards

The most significant advantage of a credit card is that you can avail yourself of rewards. However, you need an impressive credit score. From introductive offers to cash-back incentives will be good when your credit report boasts about your way of debt management.

You can get special or exclusive incentives depending on the credit card company you have applied to. Cash-back on dining, entertainment, groceries, and streaming videos can save you a lot of money.

You will miss out on these rewards in case of poor credit scores.

5.  It will be tougher o build wealth

Debt will delay building your wealth because a large sum of money will go toward the interest payments. Further, bad credit loans are expensive, so you will end up paying more than those with good credit points.

If you are living a debt-free life, you will be able to save the money you pay as interest otherwise. You can buy fixed deposits, stocks and other forms of assets that will allow you to earn interest and dividends.

Bad credit rating will also have an impact on taking out a mortgage and an auto loan. You will be under pressure to increase the deposit for your mortgage and car loan, and despite that, you will be charged a higher interest rate, which means you will take a longer time to build your wealth and retirement funds.

Wrapping up

Bad credit loans are easily available but are subject to some drawbacks. You are pretty familiar with some of them like they carry higher interest rates and can be challenging to pay off if not handled sensibly. However, there are some other drawbacks as well that are less popular but important to note.

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