Getting a bad credit loan can help to give you a second chance on your finances but if you’ve never taken out a loan before, it might be hard to know what questions you should ask. Making sure that you have all the available information is crucial to ensuring that you are in the best position to manage your debt.
Before reaching out to a bad credit lender in Australia, it’s important to ask yourself some questions first. That way you can do your best to make sure that you don’t put yourself at risk.
The most important question you can ask yourself is whether you actually need this loan. There are a lot of reasons that you could need to open a line of credit, but some may be unnecessary.
If it helps, try to write down why you want a loan. Sometimes, you may be able to come up with another solution – like just waiting a few months or finding a less expensive option. Knowing why you need money can help you work out if the loan is for something you need or just something you want.
It could be to buy a house, consolidate previous debt or some other necessary expense. These are all significant and taking out a loan for these things can help you with your financial freedom. If it turns out that you want the money for something you might not need, it might be best to hold off. Debt should never be treated as a trivial thing and it can have serious repercussions if you can’t pay it back.
If you’ve established that you need a loan, make sure that you know how much you actually need.
Some lenders only give small personal loans while others will specialise in larger lines of credit. Knowing exactly how much you need can also help you plan your repayments in advance.
Many bad credit lenders will talk to you about your financial situation before they approve a loan to ensure that you can pay back debt.
Even before seeing the lender, it’s a good idea to look at your finances to work out what you can comfortably afford. It may give you a good understanding of what you will have to cut costs on if repayments turn out to be a bit more than you expected. You’ll also be able to reinforce whether you need a loan or not.
Once you’re sure that you need a loan and understand your ability to pay it back, it’s time to turn to the lender. Don’t be afraid to ask for clarification to ensure you understand what you’re signing.
Each lender is different and will have different criteria when accepting credit applications. Make sure that you know what the criteria are and whether you meet them. For instance, to be eligible for a loan with Ume Loans you need to make sure you are:
Most lenders have minimum and maximums amounts that they’ll lend. If you need a bad credit loan to finance your car, then there’s no point in going to a lender that deals with small personal loans.
Bad credit lenders take on a greater risk than more traditional lenders because they try to give people a second chance with their finances. To compensate for that risk, they often charge higher interest rates than traditional lenders.
Make sure you know what these interest rates are and how they compare to other bad credit lenders.
Just like interest, bad credit lenders often cover their risk by charging fees to open a line of credit. They can also have sharp penalties for late, early or missed payments. Some even charge fees for different types of payment.
When agreeing to a bad credit loan, make sure to read the fine print so that you understand all the fees they put in place.
Though the terms are worked out when you agree to the loan, it’s good to make sure you understand how the repayments will work. Knowing this can help you stay on top of your debt more easily.
Asking how long you have to pay the debt back, how much your repayments are, the minimums they allow and their rules around early payments are all good questions. All of this information can help to make sure that you’re in the best position to pay it back.
Loans can come secured or unsecured. At its simplest, the difference comes down to collateral. When you apply for a secured loan, you choose assets, like your house or car, to put up against the loan. If you default on the debt, the lender can take your collateral as payment instead. Because their investment is safer with a secured loan, lenders can often approve bigger loans. The downside is that they can take longer to process.
Unsecured loans, by contrast, do not require collateral and are much quicker to process – but they often lend smaller sums. It’s important to know the risks that you’re taking on, and what the consequences for defaulting are.
Bad credit loans, like all loans, come with risks. But if you ask the right questions and make sure that you have a good understanding of what’s expected, they can help give you a second chance at financial freedom. Don’t be afraid to ask as many questions as you need to so that you understand the terms of your loan.
Dan, a former Australian jetski champion is passionate about helping various organisations and has held various volunteer and executive positions with several non profit organisations in Australia.