3 Reasons to Avoid Subprime Personal Loans

Getting subprime personal loans is something that many people are required to do when times are tough. You do not always have the money that you need to make it through. Emergencies come up and situations present themselves that require you to borrow money from someone. When your credit is not as good as it should be, you might be grouped into the subprime loan market by default. The subprime market makes its money by lending to high-risk borrowers. If you fit into that category, you might find yourself tempted to borrow money from a subprime lender. Here are a few reasons that you might want to avoid subprime personal loans all together. 

1. High Interest Rates

The biggest reason that you want to avoid subprime personal loans is the high interest rate that comes with them. The interest rates for the loans are borderline usury and make a loan very unattractive. If you fall into the subprime category, you represent a higher risk than normal for the lenders. Therefore, they want a bigger return on their investment if they take you on as a borrower. They know that a certain number of borrowers in this group will default on the loans. Therefore, they have to charge enough to still make money, even with default. With the interest rates that lenders charge, you will be paying quite a bit for the money that you need to borrow. Paying high interest usually just contributes to making your financial situation worse than it already is. 

2. Questionable  Business Practices

Another reason to stay away from subprime personal loan lenders is because of their track record of being involved in questionable business practices. Not all of these lenders are considered scams but some of them are very close. You do not want to get involved with a lender that engages in questionable business practices. It could come back to hurt you in the long run. You should only deal with lenders that have a high level of customer service and a good reputation. 

3. Get Further in Debt

Most of the time when you have bad credit and need to borrow money badly enough that you are working with a subprime lender, you already have some debt. Having a high level of debt usually contributes to a low credit score, which in turn puts you in the subprime market. When you already have a lot of debt to deal with, getting a subprime personal loan is just going to put you further in debt overall. You already can not afford to make your debt payments as it is. Adding another high-interest loan is just going to make things even worse. 

The goal is to eventually get yourself out of debt and improve your credit. Dealing with subprime personal lenders is usually not going to lead you down that path. Stay away from them, if you can, at all costs. 

blog comments powered by Disqus