A minimum payment plan is aimed to aid those who are struggling to discharge their debts. This approach is normally associated with credit card debt where your credit card provider sets a fixed limit as the bare minimum required to be paid back every month, extending the repayment length, for instance, five or 10 years, depending on your credit card bill and keeps accruing interest on the outstanding balance. Needless to say, the minimum payment plan benefits credit card issuing companies more than you do. Financial experts admonish against the minimum payment trap.
However, some people seek this repayment plan to settle bad credit debt, too. Loans for bad credit with no guarantor work differently from credit card debt. When a credit card bill is generated, you are obligated to pay off the bill in fell one swoop. This may or may not be the scenario with bad credit loans.
Poor credit loans are a term to describe any loan you take out despite a bad credit rating. They can be instalment loans to be paid back over an extended period of months, which, in most cases, is not more than 12 months. Some people apply for less-than-perfect credit loans only to meet emergency expenses. They are called same-day loans in the UK, then.
A minimum payment plan cannot be plausible for small loans with poor credit
Small emergency loans work the same way as payday loans. You will hardly have more than a month to clear your debt. However, sometimes, you are required to discharge it within a period of 14 days. You will be obligated to clear the whole dues on the due date at once. If you fall behind on the payment, your loan will be rolled over.
This means that you will now have another 14-day period to arrange funds to clear the debt, but this time, late payment fees and interest charges for an additional 14 days will also be added to your account. The cycle of rolling the loan over will keep continuing if you keep refusing to meet your obligations.
Adverse consequences not only include havoc on your credit rating but also include constant letters and emails from collection agencies. Once your account is sent to them, you will have to work on a payment plan that works well with your budget. If you still refuse to make payments, you will be taken to court. Then, a CCJ will be issued against you, which you will have to abide by.
As the CCJ appears on your credit file, you will be regarded as a borrower with a very poor credit rating, meaning your chances of borrowing money down the loan are meagre. You can prevent it by paying off the full amount within the month from the issuance date of judgment.
Some lenders may allow a minimum payment plan for instalment bad credit loans
If you have taken out an instalment and you find it toilsome to keep up with debt payments, you may be willing to avail yourself of a minimum payment plan. A lender will peruse your financial condition to determine the minimum amount. You will have to adhere to this amount. Remember that the outstanding balance will keep accumulating owing to accrued interest.
It is always suggested that you pay more than the minimum amount because it will have a significant influence on the total amount you will pay. The larger the sum you pay, the less you will end up paying on interest.
The minimum payment plan never works to your advantage. First, you will end up paying a lot more money to your lender in the form of interest payments. Secondly, sticking to a minimum payment plan will not help prevent your credit score from being ruined. These kinds of repayment plans have been made to make profits rather than help you.
Not all bad credit lenders will allow you to choose a minimum repayment plan. If they find that it is being challenged for you to stick to your current repayment plan, they will assess your financial condition and then may grant you a payment holiday. However, it will be only for a month. It is difficult that any lender would be disposed to revise your repayment plan. If your account goes into default, collection agencies will intervene.
What should you do if paying bad credit loans is challenging?
Bad credit loans can be a bit difficult to keep up with payments. If your lender can put you on another repayment plan, it is better. If you choose a minimum repayment plan, make sure you opt for the previous payment plan as soon as you bounce back.
It is not easy to get full support from lenders, and therefore, you should consider ways to make money. For instance, you can find a part-time job, a freelance job, or a side gig such as babysitting, pet sitting, lawn making and the like.
Create a budget and see if there is any scope to whittle down your expenses. Do not hesitate to completely eradicate discretionary expenses until you discharge the whole of the debt. The money you save should be utilised for debt settlement.
To sum up
Small bad credit loans do not allow for a minimum payment plan; however, some lenders may let you choose this option if you are on an instalment repayment plan. It is always suggested that you figure out ways to improve your income sources to pay off your debt obligations.
Budgeting can help you to have better control of your finances. Try to retain some money by cutting down on your expenses and using that for debt settlement.
Mark Williams works as one of the Loan Advisors at a direct lender firm, Onestoploansolution. He has been working with the lender for about 15 years. He has been known to facilitate his employer in remarkable ways from writing to consulting and whatnot. He is a professional who wants to explore more of the UK financial market, the loan products and how customer requirement changes with time.
