While a lot of people like to avoid taking out a loan, sometimes there’s just no way around it. Taking out a good loan is usually no problem: if your credit score is good enough, the interest rate and repayment dynamics are usually reasonable. However, sometimes, in a pinch, we are forced to take out loans under less than ideal circumstances. If you have found yourself in that situation, don’t allow yourself to feel discouraged. There is no reason to despair. Even bad loans sometimes serve a purpose. The most important thing is that you put the money to good use, make the best out of a less than perfect situation and get rid of the loan as soon as you can. Here are some bad loan basics, and situations when it’s justified to take them.


What Makes a Loan Bad?

While some people automatically think that any loan is a terrible idea, that’s certainly not the case. If you have assessed your budget realistically, and you can definitely afford the payments, a loan can be a good way to get some cash fast. Bad loans usually have payments that are too high, and draconian penalties if you don’t pay on time. So, when is it acceptable to take one anyway? Well, if you find yourself between a rock and a hard place, you might not have much choice.

Incoming Cash

If you are in dire need at the moment, a loan might seem very attractive. Sometimes, although we are penniless in a moment of need, we know that we have some pending income. If you’re absolutely certain that you will be able to repay your debt, it could be okay to take a loan. However, don’t rely on blind hope – thinking you’ll get a job, win the lottery, or just figure something out.

Repay a Worse Loan

Sometimes, you might not be eligible for a good loan, but you have an even worse one tied around your neck. A terrible interest rate may have completely eaten up your income. Experts like those from the Australian Lending Centre say the right move is to consider debt refinancing. If you’re looking to reduce the horrible interest rate you are locked into, it could be worth investigating whether you could get refinancing under better conditions. A lot of companies offer refinancing loans, even if your credit score is low, and many guarantee better terms than your original loan.

Unforeseen Circumstances

Sometimes, life just deals us a bad hand. Maybe you are in the process of getting a divorce, with no place to go, and no nest egg to fall back on. Maybe you’re in danger of losing your home. Maybe you were unable to work for a while due to health problems. Whatever the reason, there are occasions when there is simply no other way out than to take out a loan. Still, minimize the damage by looking for the best possible terms under the circumstances.


A Bad Loan Is Not an Easy Fix

A Bad Loan Is Not an Easy Fix

Be careful not to fall into the trap of living perpetually on loans. Not only is this kind of behavior irresponsible, it’s also quite risky. If you rush from one bad loan to another, without being able to repay them, that will ultimately completely ruin your credit score. Taking out a bad loan to finance a new car or a beach vacation is not a sound idea. The risk associated with a bad loan is only worth it in otherwise hopeless situations, and when you have a definite plan on how to repay the money.

Even a bad loan can sometimes serve a good purpose, if you look at it as a temporary patch, and not a definitive solution.


Dan Radak is a marketing professional with ten years of experience. He is a coauthor on several websites and regular contributor to BizzMark Blog. Currently, he is working with a number of companies in the field of digital marketing, closely collaborating with a couple of e-commerce companies.