Why You Must Avoid Payday Loans for People with Bad Credit

If you have a bad credit and you need a quick loan and if you want only a small amount of loan for a very short time, you may consider payday loans for people with bad credit.  For bad credit loans Canada has many lenders for installment loans and payday loans that will give you a loan.

Payday loans are very short-term loans granted for repayment by the next pay day. For example, if you want $500 loan, $1000 loan or $1500 loan quickly and only for a short time, you may want to apply for a payday loan. Payday loans are only given till a borrower receive their next paycheck. Therefore, the term of the loan will depend on how far away you are to your next pay check.
Although a payday loan is granted till the next payday, it can be extended from the next payday to the one that follows and the one that follows. In other words, payday loans can be granted for up to 90 days.

Anyone can apply for a payday loan but most people who go for payday loans are people on low income who find it difficult to survive on their pay check or find it difficult to wait till the next pay day to get paid. This is a bit of a generalization, but many people in this category, tend to have bad credit and often apply for payday loans designed with people with bad credit in mind. If you have a bad credit rating, you may find it difficult to borrow money at lower interest rates. If you need a quick small loan, your best option will be to apply for payday loans for people with bad credit, which is charged at a higher interest rate.

Lenders to people with bad like to protect themselves from the risk of default by charging higher interest rate, although I can’t see how charging higher interest rate achieves this. Rather, one may argue that the high interest rate may rather make it difficult for lenders to pay off the loan and may increase the risk of default.
This may put borrowers in to a perpetual bad credit status position. That is, a borrower can’t pay their loans or credit cards and then had a bad credit history. Because of the bad credit history, they can’t get a loan from the normal sources like banks. They then go to lenders of bad credit loans who charge them higher interest rate. Because of the high interest rate, they have to make higher installments and for a longer period of time. Their loan status gets reported to the credit reference agency and their credit file is amended with their new bad credit history.

This high interest rate charge is one thing that makes payday loan a very risky loan for borrowers. In some cases, payday loans interest can be as high as 400% of the loan.
If you need a bad credit loan, rather than going for payday loans for people with bad credit, you may want to consider bad credit unsecured installment loan.

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