There are several features of bad credit loans that make them quite different to normal lending instruments. For one thing, they are generally made to people under pressure.

These borrowers are people who need a (usually small) loan for an urgent need, and have very few lenders available to them. Perhaps even no borrowers in sight at all. That makes them somewhat desperate. It is pressure.

And then, they will probably also be under pressure because repaying their new loan will be just as difficult as trying (and failing) to repay the earlier loan that earned them their reputation as a risky borrower. Notice the word ‘probably’. If that original loan lapsed under very unusual circumstances, this pressure would not apply.

High rates of interest

And there is a high rate of interest. Where banks and the larger lending institutions frequently compete on terms and interest rates, and this keep interest payments down to some extent, it is the reverse when lending to people with bad credit. All lenders to people with a history of bad credit will be concerned to make their money as expensive as possible, since the risk is undoubtedly high.

Well, there are things we can do to keep those interest rates down.

How to negotiate lower interest rates

First, you need to be aware that these rates can be discussed and negotiated down. Not right down to the levels the banks are comfortable with when they are lending to borrowers with good repayment histories. But down from the advertised rates or the first rate offered as you first walk through the lender’s door and confess to your history of bad credit and inquire about a loan never-the-less.

The best way to open your negotiation over the rate is to have as much in your down payment as you can possibly afford. Simply bringing a big down payment to the table can go a long way to greatly reducing the rate. This may seem counterintuitive, but there is plenty of sense and anecdotal evidence that the finance companies that disburse bad credit loans charge less when the borrower brings a significant down payment to the table.

One reason for this is that it creates in the mind of the lender a favourable picture of your saving and spending habits. You come with a substantial down payment, which means you have been disciplined and have an income.

The importance of the down payment

So, if it is at all possible, start saving for a down payment even half a year before you need the loan. You will reduce the interest rate on the loan you finally take out, and this will make a huge difference to the total amount you repay in the life of the bad credit loan.

Jerry Warner writes general finance and loan articles for the Bad Credit Loans Online website at http://www.badcreditloansonline.co.uk