Finance -
Do you really need a bad credit loan?
Stuart Hunter
Providing credit repair services since 1991, Lexington Law has helped over 500,000 clients legally take on their credit. Last year alone, Lexington Law helped clients remove over 600,000 negative items from their credit reports. 
By Stuart Hunter
Published on 05/8/2009
Bad credit loans are a resource for consumers with poor credit scores to purchase homes, automobiles, etc., but while bad credit loans may help accomplish these tasks, the cost of a bad credit loan makes them something to be avoided whenever possible.

Do you really need a bad credit loan?
For some people, bad credit loans are a necessary tool for purchasing a home or purchasing a automobile. They have the money to pay for these purchases, but their credit scores are too poor to get approved for a low interest rate loan. A bad credit loan gives them an avenue for making a major purchase and a means to begin generating positive credit that, if they act responsibly, will help improve their credit scores over time.

But bad credit loans have a heft price. Because of the much higher interest rates, a person with a bad credit loan can expect to pay hundreds of dollars more every single month for the exact same house than someone with a good credit score. When applied to an entire 30 year mortgage, these bloated payments can add up to hundreds of thousands of dollars. Those hundreds of thousands of dollars are the cost of using a bad credit loan.

This is one of the costs of bad credit, and in many cases, a cost that is not necessary and not fair. Bad credit loans are structured the way they are to help protect lenders. Lenders collect more than is required to profit from the transaction to protect themselves from losses caused by people defaulting on their loans. When approving bad credit loans, lenders are expecting a certain percentage of people not to pay off the loan. They make sure those who do make their payments pay extra to cover those who don't. When you make a payment on a bad credit loan, you are paying on your loan and on the loans of all the people who stopped making payments.

But what if you aren't a high credit risk? If you are a dependable consumer who can be trusted to pay your bills, is it really fair for you to have to pay extra to make up for all the people who are not responsible?

If your credit rating is making you seem like a less credit worthy person that you really are, you are not alone. There are many, many people out there whose credit rating does not reflect their actual credit risk. Their poor credit rating gives banks and lenders the impression that they are not credit worthy when in fact, the opposite may be true. Credit repair is the tool thousands have turned to in order to make sure their credit score is an accurate representation of their true credit worthiness.

Using credit repair, people have been able to significantly increase their credit scores so they don't have to settle for a bad credit mortgage loan.