Unfortunately, all of us know what it feels like to owe money to someone. But very few of us know that there is a difference between bad credit and bad debt. And the difference is significant, especially when you are in need of instant and immediate cash that could help solve a financial problem.
Bad credit is a term used for when missed or no payments have occurred on those loans. Bad debt, however, is a term used to imply that someone has taken on too many financial commitments and the total amount owed on all of these commitments is so high that it is virtually impossible for the person to pay this back.
A very important distinction. Because the difference between the two could mean the difference between applying successfully or unsuccessfully for a bad debt loan.
Do I qualify?
A bad credit loan is a personal loan made available to someone who has weak, bad or no credit at all. As you can imagine, bad credit loans in NZ are generally expensive with a high-interest rate, understandably because the borrower has a history of not paying their loans.
Why are bad credit lines so expensive?
The answer to this is that it all comes down to risk. When a bad credit loan is issued to someone, that person has demonstrated in the past that they have a history of paying late or not at all. This means that the lender is at a high risk of not getting the money back as you have already demonstrated a history of not paying your debts, so they expect that there is a good possibility of this happening again for them.
To mitigate this risk, lenders charge a much higher interest rate for a bad credit loan than they would for a normal cash loan. By doing this, they increase the chances of making more money on these risky loans than they would on a normal loan.
What are my Options
There are a few types of bad credit loans, all with their advantages and disadvantages.
Secured Loans
A secured loan is one where the borrower offers the lender some form of collateral to gain approval for the loan. One of the most common and popular types of collateral is a home, car or some other tangible, valuable asset. When you place this asset up as collateral for the loan, you give the lender the right to repossess the asset in case you fail to make any payments on the loan.
One of the advantages of a secured loan is that you can secure a large amount of money since the lender must match the value of the collateral that you are putting up.
Unsecured Loan
Of course, not everybody has a home or vehicle to put up as collateral for the loan, so often an unsecured loan is agreed upon.
An unsecured loan is a loan given based on only the signature of the borrower and a promise that you will pay off your debt. In most cases, the lender may ask you to get someone to co-sign for the loan or guarantee to repay the loan. Of course, this is easier said than done, as this co-signer is also signing up to take responsibility for paying off the loan in the case that you can’t pay it off yourself.
Of course one of the major benefits of an unsecured loan is that no equity or collateral is required to be put up for the loan however this also means that you won’t be able to get as much money as you would if you were putting your house up for collateral. And due to the risk that the lender is taking on, they may charge you much higher interest rates.
Payday Loans
Undoubtedly one of the riskiest, and most expensive types of short term bad credit loan you can take out is a payday loan. The reason for this is that a payday loan can put you in the red quite quickly if you don’t pay it back as fast as you can.
It’s always best to only opt for a payday loan if you are certain that you are expecting a large amount of money to be coming in in the next couple of days so that you can set up a loan and not be exposed to the extremely high interest rates that accompany the loan.
A payday loan is required to be paid off within a couple of days, weeks or months at a high-interest rate and of course, if you are unable to pay within the due date, the loan will acuminate interest, quickly becoming very expensive and sometimes unaffordable.
Credit Card Loan
A final type of bad credit loan that you could opt for is a credit card loan. Provided you haven’t yet maxed out your credit card; you can apply to the bank to get a credit card or cash advance loan on the credit card.
The money you take out, and the repayments for the loan that you have received, will simply be included in your monthly bill for the credit card and be charged at the credit card interest rate that you have agreed to when applying for the credit card.
An obvious advantage of this is that you have a better idea of what you are in for from an interest rate perspective and the repayment can simply come off an existing loan vehicle.
If you’re looking for a bad credit loan in New Zealand and insist on working with not only a fair and reputable loan provider but also one that will work with you to find a solution for a fair repayment package, then Cash Relief should be your first port of call.
You can apply for a loan online and with no paperwork, and we’ll do everything we can to avoid any further damage to your credit history when you take a loan from us.
Get in touch today.
