A financial crisis is simply inevitable if it has to come. We cannot predict what would happen in the next moment and how quickly our financial resources will get exhausted. Scarcity adds value to anything. Having cash in hand at the required moment is not always possible. Hence, we have developed a system of borrowers and lenders, which helps the ones in need as well as is a source of income for the lenders. This mechanism is well prevalent in banks, which are full-fledged institutions organised and run by a set of rules and borrowing from these formal sources is very tedious, time-consuming and uncertain.
WHY INFORMAL LOANS?
Another option would be informal sources of credit: bad credit loans on guaranteed approval from direct lenders. These loans are less ambiguous, certain and Volant. It is a piece of old tackle to avail these loans as the lender and the borrower are in direct contact with each other eliminating the need for middlemen and formalities.
FEATURES OF INFORMAL CREDIT
There are different types of informal loans, like payday loans, unsecured loans, doorstep loans, student loans, mortgage loans, etc. Some common features of all these are- direct lenders wish to overlook the credit history and extend loans in spite of having no guarantee or a good credit score, ready to hoard the risks accompanying it. There is no need for collateral or guarantee to avail these loans. Because of these provisions, these loans tend to charge a higher rate of interest as compared to traditional formal sources of credit. The terms of repayment are clearly specified beforehand. Most lenders are only willing to give short-term loans pertaining to the risks they are already carrying.
SILVER LINING IN THE DARK
These are all advantageous in case of impasse situations when all other resources are exhausted and money is the need of the hour. Apart from this, getting such loans is easier and faster. We can apply for instant loans in case of emergency situations in which case, traditional and formal sources of credit prove to be inefficient. Doorstep loans are also available to make the entire process more clients friendly. Payday loans are loans for a short period and the borrower can choose the time duration. Unsecured loans give credit with no verification, credit history, submission of salary slips, etc. There are many nuances when such loans have helped people overcome difficult situations.
ALL COINS HAVE TWO SIDES
Some demerits of unsecured loans are that they charge a comparatively higher rate of interest. We must do repayment on time, otherwise, the borrower might fall into a vicious debt-trap. Hence, one must consider affordability, need and terms and conditions before taking a loan.
CREDIT SCORE: IMPORTANCE AND VALUE
Credit score, credit record or credit history are none the same. These terms refer to the reputation of a person’s credit activities in the past and are taken into account by other boards for any future loan activities. It is calculated by considering the repayment of past loans, punctual credit card payments, bills, etc. It is very crucial to have a strong credit record to get loans of large amounts at a lower interest rate. Hence, credit score is the reflection of a person’s credibility and responsiveness.
A bad credit score is a drawback and can create hurdles in financial development. This can be due to negligence or, like in most cases, unforeseen dire circumstances like a sudden loss, or bankruptcy. The one and the only way out is to seek help from direct lenders, who will provide informal sources of credit without a credit score check and guarantor.
HOW TO CHOOSE?
The decision to take a loan is completely the person’s own personal decision. But, all the pros and cons must be studied and intricately and we must make accurate calculations about the situations that may arise if any unwanted or undesirable outcome occurs.
One must choose wisely whether to take a loan and before we take a loan, a few things must be sought after. Always consider the amount of money needed to be borrowed, the time for which it is needed, the terms and conditions of the lender, the interest rate and affordability of the loan and
other financial sources.
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