Personal loans are risky by definition because they are unsecured. Lenders have always been cautious when extending personal loans. Usually lenders look at the borrower’s credit history to determine how much they re willing to lend and the interest rate they will charge to lend it. For many years, that left individuals with bad credit without a lifeline for emergencies.

Everyone has emergencies, even good people with bad credit. Recently, credit unions and some banks and savings and loans have stepped up to provide short-term loans to the members and depositors with bad credit. These institutions not only offer the best interest rates available to people with bad credit but also offer additional services such as financial counseling, and debt consolidation.

Once the only option for people with bad credit, payday loan companies still meet a need in the community. Usually the only requirement to get a loan is that the borrower be employed. With payday loans, the borrower writes a post-dated check for the amount of the loan and the interest. For instance, if the amount of the loan is $100, the borrower would write a check dated for his/her next payday in the amount of $115 to $130. When the next payday arrives either the borrower comes in and redeems the check or the lender deposits the check.

Payday loans are particularly risky for borrowers because of the shortness of the term. Most borrowers were living paycheck to paycheck before an emergency put them into financial crisis. One payday is not a long enough term to get the borrower out of the financial crisis brought on by the emergency. All too frequently borrowers have no choice but pay the fees and roll the loan over for another two weeks.

Once a borrower begins the cycle of rolling over their loans, there is often no way out. The payday loan that was meant to solve an emergent problem has become the problem itself. If for instance, a person borrowed $100 and wrote a check for $130 to pay the principle and interest, only to find out that come payday, they didn’t have the funds to repay the loan. The borrower then pays the $30, and rolls the loan over. If the borrower rolls the loan over three times, he/she has paid $90 in interest in six weeks.

Personal loans are available to individuals with bad credit. Smart consumers will shop around and find the personal loan with the longest term and lowest interest rate to meet their emergency needs.

Popularity: 1% [?]