Bad credit situations are common these days. Many people have been affected by the global economic crisis making getting a loan difficult. Banks are much stricter about lending so many seek to obtain bad credit loans. You might be desperate, but before you act it is important to get some facts about bad credit loans. Here are some things you should be aware of before you borrow.

High-Interest Rates

Institutions that offer bad credit loans often charge high-interest rates sometimes even over 100%. It is important to read and understand all the terms and conditions on a bad credit loan before you borrow. If you don’t think you can make the payments you are better off looking for help somewhere else.

Scam artists

There are many fake loan institutions out there looking to take advantage of people. They appear very legitimate, but they are just waiting to steal your money from you. Avoid any lender that asks for a “security deposit” or “processing payment” or any other type of upfront payment before you get the loan. They will quite simply take your money, and you will never hear from them again.

Other options – There are ways to get a loan through even if you have bad credit. For example:

Home equity loan

You borrow against the value of your home or the equity you have paid towards your mortgage. Remember that if you can’t pay the loan the bank takes over ownership of your house.

Credit Union

These are organizations similar to banks but the owners are members of the credit union. All the members work in the same industry or live in the same geographic area. Credit unions are more flexible in their lending criteria as compared to banks.

Friends or Family

It doesn’t hurt to ask a family member or friend for a loan. Write up an official contract agreeable to both parties. If you do it right you will both feel more comfortable.

Get a co-signer

Ask someone to co-sign on a bank loan with you. You are much more likely to get approved for a bank loan if someone with good credit is willing to sign the loan contract with you.

Peer to peer lending

These are online sites that connect individual lenders with borrowers. Check out sites like www.prosper.com. The interest rates here are usually reasonable, but you have to sell yourself and transmit confidence to the lender.

Get a job

Your chances of being approved for a loan are much higher if you can show that you are employed. This applies to all types of bad credit loans. Unemployment makes lenders nervous and less likely to approve you for a loan.

Many people suffering from bad credit are in complicated situations, but there are options. If you present yourself as informed and prepared to make payments you are more likely to get approved for a bad credit loan.