What to Expect
Most often, a loan taken out on bad credit is approved and then later denied, something that allows the lender to get you into their arms before finally telling you that your credit is, in fact, too bad. The loans offered are often high sums, providing whatever amount you need. In addition, you will receive a longer payment period that allows the lender to get the most interest out of you for the loan amount you took. Luckily, these loans will help you get out of debt and, if you make your payments on time, improve your credit significantly. Ultimately, you will receive a large loan with low monthly payments but a long repayment period and higher interest rates than many other people get. It is not a trick and most people with bad credit expect such terms, but it is not always a realistic sum, so even if you expect it, you should research it before hand.
The Lenders do Benefit
You are probably asking what the lenders get out of a loan with someone that might not even be able to pay it back. First, the interest rates are through the roof. Lenders will approve a loan to anyone if they are getting such a high percentage back in interest. You might pay as much as three times as much on a bad credit loan a someone with good credit, and that is all profit for the lender. They know that you will say yes because they are the only lenders offering you the option. It is a simple situation on their end.
As soon as lenders discovered they could make solid profits by providing high interest loans to those with bad credit, their was an immediate surge in the volume of such loans. Today, they are hit or miss, and can actually hurt you more than help if you are not careful. If you are in debt and have bad credit, getting a loan may not be the best solution. Start saving, measuring your income, and being more careful with what you spend. If you can bypass the need for these high interest, poorly termed loans, you can help reduce the influence of these lenders. However, if you truly need such a loan, make sure to take the necessary time to research what they offer. Talk to a financial professional and lay out all of your options, making sure you can easily afford payments, are not paying on the loan for years to come, and do not overborrow against your means.