Bad credit loans have a reputation for having high interest rates. However, this doesn’t mean that there isn’t anything that you can do to lower those rates. Many lenders that offer loans for bad credit borrowers allow borrowers to secure their loans with collateral or allow for a cosigner on the loan. How does that help reduce the interest rate on money loans for those who have bad credit?
The Benefit of Securing a Loan With Collateral
Collateral is anything of value that you offer to the lender in the event that you don’t repay the loan. For instance, you may put up the title to your car or the title to your house assuming that you have sufficient equity in those assets. The lender now has the right to repossess and sell that asset to get the money you owe.
Liquidating an asset generally takes less time and costs less money than trying to track down a delinquent borrower or having to go to court to secure a judgement. It also means that the lender knows how much it can get back as well as the fact that it can get the money immediately. Even if a lender did secure a judgement to garnish wages, it would only get a fraction of what it was owed each paycheck.
The Benefit of Putting a Cosigner on a Loan
The benefit of having a cosigner is that it tells the lender there is someone who will pay the loan back if you don’t. Anyone who cosigns a loan is responsible for making payments in the event that the primary borrower doesn’t. In fact, anyone who signs a loan with you suffers the same credit fate as you do. In other words, if you miss a payment, your credit score as well as the credit score of the person who signed with you goes down.
This provides incentive for you to make payments because you don’t want to harm the credit of a friend or a parent. The cosigner may also help to hold you accountable because he or she won’t want ruined credit just because you missed a payment or made it late.
From the lender’s perspective, having another person guarantee the loan helps because that other person may be liable in the event that you file for bankruptcy. Therefore, you may ultimately benefit from lower borrowing costs as the risk is shifted from the lender to you and the cosigner.
Regardless of your credit, it is critical to consider the interest rate on any loan that you take out. If you have the opportunity to lower your interest rate, it could represent hundreds or thousands of dollars that you get to keep in your pocket. Therefore, you should take that opportunity any chance you get. For additional resources, visit We Loan Money.