Credit scores are used to determine if you qualify for a loan, how much interest you will pay, what your loan terms will be, and whether or not you can get insurance. While those who have bad credit are still able to qualify for loans, they will most likely pay a significantly higher interest rate than those who have a good credit score. Having a bad credit score will also affect what type of loans you are eligible for. For instance, if you have a very low FICA score, then you will most likely not qualify for a standard vehicle loan and will instead have to take out a special loan that can have extremely high interest rates, additional fees, and other stipulations. This can wind up costing you thousands of dollars extra than if you were to take out a loan for the same car and have good credit. This is just one example of how having bad credit can affect you. Here is a list of the pitfalls that can come with having bad credit.
Bad Credit Could Mean Higher Financing Rates
Most big ticket purchases such as cars, houses, or even televisions are often paid for with a loan. The rate of these loans is determined by your credit score. If you have a good credit score, then a company will have more faith that you will pay back your loan and reward you with a lower interest rates and better loan terms (such as a longer loan or a clause that allows you to pay if off early without any penalty). If you have bad credit then these loan lenders believe that lending to you is a risk and will make it more difficult for you to obtain a loan. They will most likely charge you a higher interest rate and might even tack on additional fees to obtain the loan. They could also make you put down collateral that can be taken away from you to secure the loan.
Bad Credit Could Mean Having Higher Down Payments
If you are looking to purchase a home or other big ticket item you might get penalized for having bad credit by having to put down a higher down payment. The lender doesn’t believe that you will pay back the loan if you have bad credit, so they can reduce their risk by having you put down a larger down payment. This could make it more difficult for you to get a loan if you do not have the additional cash.
There are many long term effects of having bad credit. A person with bad credit will end up having to pay significantly more for an item (both in the form of a higher down payment and with higher interest rates) than a person who has good credit. This can make it difficult to get future loans because all of your cash is tied up into the loan that you currently have and can diminish your overall quality of life. I would suggest one of the credit repair companies, read our Lexington Law Reviews.