Bad Credit Loan Meaning

Bad credit literally means credit went wrong which implies that credit given by the bank or financial institution has turned into bad debt or borrower has defaulted on the loan but finance being finance it has provision for such things also. A bad credit loan refers to those loans which are given by the financial institution to those borrowers who have bad credit score or history. A bad credit history can be due to a variety of reasons like missed installment repayment, default on the previous loan, delay in credit card dues repayment and so on.

Borrowers who have bad credit history will find it very difficult to get loans as loan application of these borrower gets rejected at initial stage due to a lower credit score as the banks and financial institutions do not give loans to people who are having bad credit rating. Bad credit loan is a second chance to those people who have defaulted on their previous loans due to circumstances rather than willingly. The rate of interest on bad credit loan is high due to the risk associated with giving a loan to individuals who are having a bad credit rating as well as credit history.

An individual should keep in mind that bad credit loan is not a solution if one is the financial crisis because one has to repay this loan by paying monthly installment and if one cannot manage the monthly installment than an individual will default on this loan too leading to further fall in the credit rating of an individual. Financial institutions too should be cautious while giving such loans because if they give bad credit loan to all the people then they will be playing with fire because a majority of people who are having bad credit score or history will not be in a position to repay the loan.

As one can see from the above that bad credit loan is like a booster dose to dying person and as is the case with booster dose while some patients react positively and get cured while others die. In the same way, bad credit loan can help some individuals to stand back on their feet financially while other individuals will fail to repay bad credit loan also.