Micro Loans for Bad Credit
No matter what your typical financial status is, life will put you in a situation that makes you need to borrow money. Maybe it’s to consolidate debts, buy supplies for your small business, or pay for medical emergencies.
However, everyone who’s had bad credit at some point knows how many nos people with bad credit get from lenders. Yet, having a less than perfect credit score shouldn’t stop you from starting a small business, pay unexpected bills, or buy white goods.
If you’re interested in knowing everything about microloans for bad credit borrowers, continue reading.
What to Look For in Micro Loans for Bad Credit
You’ll hear the term “responsible lending” a lot, and it’s time to know what it really means. If you’re borrowing money for whatever reason and have bad credit, you’re in a vulnerable position. This is where the bad guys come in.
Predatory lenders deceive borrowers with bad credit or low income because they know that these borrowers don’t have other options. They aren’t fully transparent with their borrowers and trap them into agreements that they don’t know everything about.
So, the next time you borrow micro loans Australia, make sure you pick an ethical lender that charges you fairly.
Ability to Repay
Look, we understand that you want to borrow money because you need it at the moment. That being said, you have to ask yourself whether you’ll be able to repay it at the rate you agree upon.
Many people end up in more debt than they started because they over-estimated their financial abilities in the near future. So, be realistic and calculate what you’ll owe before you owe it so that there are no surprises.
Fees and Interest Rates
Whenever we tell a borrower to check their ability to repay, they ask, “what exactly will we repay?” Well, mainly, of course, you pay the principal, which is the amount of money you borrowed.
If your micro loans aren’t interest-free, you’ll pay interests, which can add up the costs if you’re not well-prepared. In addition, there are fees that differ from one lender to another, such as origination, processing, and prepayment fees.
Also, don’t forget the late fees that keep everyone in line, and make sure you repay everything on time.
Types of Micro Loans for Bad Credit
1. Secured Loans
Secured loans are those where the borrower offers a valuable asset that they have as collateral, which encourages the lender to approve them, even if they have bad credit. So, it comes as no surprise that they’re the perfect solution for countless borrowers with bad credit.
Pros of Secured Loans:
Low Interest Rates
Lenders are always after security. They want to lend you money, but also want to make sure that they get it back. So, when you offer a house or car as collateral, they feel safer about lending you money, which gets you lower interest rates than a nonprofit micro loan.
Borrowers with bad credit tend to not have much freedom even if they get accepted; lenders may restrict them to borrow a smaller amount of money. However, collateral loans give you the ability to borrow a larger amount of money while saving on charges and fees.
Cons of Secured Loans:
Could Lose the Asset
Putting up an asset as collateral is smart in increasing your chances of approval as a borrower with bad credit. That being said, if you default on payments, you could risk losing the asset. So, you have to really keep yourself in line when you borrow a secured loan.
2. Micro Loans for Centrelink
Sometimes, life throws something at you that makes you need extra help financially, even if you’re receiving benefits.
There is a centrelink customer micro loan, which help them in ways that their benefits alone don’t. However, you could be eligible for advance payments from the Department of Human Services, where you borrow a portion of your Centrelink benefits earlier than their time.
Pros of Advance Payments:
If you’re taking a small amount of something that’s already yours, there are no risks, really. You won’t have to suffer through the anxieties about interests and fees. So, if you don’t want any surprises, we recommend getting an advance payment.
Cons of Advance Payments:
If you’re out looking for a micro loan, you’re already down to get a small amount of money. However, advance payments are much smaller in amount than micro loans. So, if you need more than a part of your Centrelink benefits, this option may not be for you.
Pros of Micro Loans for Centrelink:
While getting advance payments can limit you to relatively small amounts of money, centrelink customer micro loans can get a little bit further. So, if you need an amount of money that’s larger than your benefits, getting a micro loan will definitely help.
Cons of microfinance loans for Centrelink:
High Interest Rates
The more money is involved, the higher the risk. Put yourself in the place of your lender: you’re giving money to someone with bad credit and receiving benefits, and you want to make sure that you’ll get your money’s worth. So, your layer of security as a lender will be charging higher interest rates.
Hopefully, this article has been informative enough to give you an idea about micro traditional loans and what people with bad credit need to know about them. Make sure you’re properly informed about your loan, whichever type suits you most and be honest with your lender.