Loans are easy to get and banks usually chase potential customers to give out loans in the market. There are many types of loans in the market. But the irony of the situation is that there are more options for those who have bad credit ratings rather then good ones. Also those with collateral have about as many options as those who do not. The basic difference is in the pricing of these loans. Naturally the ones with bad credits and no collateral are expensive as compared to those who have both. The basic idea behind credit ratings is that it shows the ability of the individual to pay back the loan amount.
The same can not be said about bad credit loans. Basically one does not have to give any collateral for such loans. Also people with bad credit loans can also take these loans. These loans have very high default rates and mostly the banks cant do nothing about them as the bank does not have anything in their hands. No collateral or anything for that matter so if the loan applicant runs away the bank cannot recover their loan amount.
As we might have heard time and again till our ears started bleeding that the recession started when the sub prime market collapsed. These loans which do not require any kind of security from the loan applicant are called sub prime loans. These are the same loans which brought such chaos into the financial market and reduced huge banks doing business worth thousands of billions of dollars and pounds to growling and begging corporations looking for Government aid.
It is really a noose which is tightened around the banks neck with every loans given out. The no see is tightened further when the person defaults and vanishes. Most people already have bed credit ratings and thus do not mind defaulting on such loans. Easy money!
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