The FICO score starts from 300 and it ends at 850. This score determines whether you will be eligible for a loan or not, and how much you will be given. The score is usually calculated using a number of variables such as your monthly income and expenses, the debts that you have, you job status and other factors. If you have a score that is more than 720, you can easily secure a loan, on the contrary if your score is less than 600 you can only apply for bad credit loans.
Interestingly, it is usually hard for most people to understand the rationale behind the decision of some financial institutions to lend money to people who do not have a history to being prudent. If you observe the phenomenon casually, you may be quick to think that the reasoning of the management of such financial institutions may be defective.
Nevertheless, it may be wise to quickly point out the fact that financial institutions have strong reasons for all of their actions. One singular point that is at the backbone of their decision making process is that they are sure that when some people have poor credits scores it is not that they are not prudent in financial matters. Thus, they seek to help such people raise their scores.
For example, some people may unwittingly make foolish business decisions that have made them to lose a great deal of money in business. It may be that they bought some stocks when every other person is selling. In fact, some people may also owe them large sums of money. Another factor that may place people in less than ideal financial condition is if they become afflicted with a sickness that requires them to spend much money to treat.
Another factor that encourages financial institutions to provide this kind of loan is that the law allows them to fix interest rates that are higher than those on a regular loan are. In fact, the interest rate can be very high to the level that it is only the people with a strong heart that can even consider applying for the loan. If you do not have a good plan in place to repay your debt, do not get into it.
Additionally, you can divide this type of loan into two general categories. The first category is known as the secure loan while the second one is known as the unsecured loan. You can only apply for the secure loan if you have collateral that has a higher value that you intend to borrow. Most people use their homes or real estate properties as collateral.
If you want to apply for the unsecured loan facility, it means that you do not have any property that you can use as collateral. Thus, if you do not pay back, it would result into business gone badly for the lender. In essence, you should be prepared to pay interest rates that are even higher than the rates of secure loan facilities.
The point is that lenders who provide bad credit loans are mainly concerned about how they can help people who are in need of money and how they can make money in the process. Yet, there is much skepticism about the fact that such business relationships are mutually beneficial. If you are in need of money, you want to gather all the information that you can get so that you can make an informed decision.
Article Source: http://www.a1articles.com/why-companies-still-provide-bad-credit-loans-to-people-2419921.html
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