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If you’re considering taking out a bad credit loan, look out for some of the following pitfalls.
1. Late Payment Increases – Rather than foreclosing on your loan when you are habitually late or missing payments, some lenders now increase your interest rate as a late payment penalty. Of course, you should be making your payments on time anyway, but look out for these late payment increases as they can cost you a lot of money.
2. Prepayment Penalties – Many bad credit loans want to make sure you keep the loan for a minimum period of time. They will institute a prepayment penalty, or fine, if you pay the loan off sooner than they want you to. In some cases, these prepayment penalties are only for a matter of months or 1 or 2 years. Be wary of these penalties and make sure you know when yours is up if you must have one to secure your bad credit loan.
3. Balloon Payments – A balloon payment is when you have low payments up front, only to have a huge payment at the end of your loan term. If you are prepared for this, this kind of program can work very effectively, but if you are ill prepared you can get yourself into serious trouble, so be aware and plan accordingly.
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