How Short Term Lenders Operate With Borrowers with Poor Credit
Following the recession crisis, borrowers were placed in a difficult situation as many were entirely shut out by traditional lenders. As financial institutions begin to recover from losses and loans, which were granted to troubled borrowers, there is an increasing trend for the largest lenders to woo customers back. A bankruptcy lawyer in Manhattan, Charles Juntikka said that people with bad credit are already addicted to credit and banks are again pushing it.
This means that these banks are building confidence with the very clients they had locked out. However, consumer advocates and attorneys worry that these financial institutions could again be preying on the vulnerable and borrower who is willing to take out credit at whichever cost. Former banking regulars have raised concerns that this kind of lending, which is at its early stages, could potentially put the institutions to the same risky lending that was cited as one of the factors that helped fuel the credit crisis.
The lenders on the other hand have said that they learned a lesson from the crisis and they are keenly distinguishing between chronic deadbeats, and what they call fallen angels- referring to those who had good repayment record before the credit crisis began. Shorter-term lenders have discovered that there is a group of poor-credit borrowers who can repay their loans in short term.
This is a booming business, as the lenders do not want to engage in long-term deals with these vulnerable borrowers. Although unemployment remains high, consumers are working hard to reduce their debts. Delinquencies on credit card and car loans have gone down sharply from the heights recorded during the crisis. This gives the lending institutions a new hope in recovering from the lending crisis.
Understanding that they are dealing with financially sophisticated client, the lenders still think that they can expand again. A principal in Deloitte’s banking practice noted that this segment of vulnerable borrowers cannot be ignored anymore. Short term loans are ideal for people who need money to cover their expenditures for a short period. According to Bankrate, there are four types of short-term loans available to persons with poor credit. These are payday loans, title loans, pawnshop loans and advance free loans. Some of these are secured by collateral.
However, there are other unsecured loan programs that fall under short-term loans, and which can take up to 4 years to pay. Because the poor credit may not necessarily mean that a person cannot repay a loan, lenders are examining the ability of the borrower to repay. If you have steady income, you can apply for a short-term loan and be able to repay.
The lending institutions also understand that they can help the already trapped borrower to start building his or her credit score. If you take short-term loans, you are able to complete repayment fast and help build your score. You can take another loan at even a better rate after you have cleared the first. Short-term personal loans can average up to 4 years. However, they attract higher interest rates than long-term loans. You need to choose a lender who offers lower interest rates and ensure that you do not default the payment or make late payments