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- Bad Credit
Getting a loan with a bad credit is trying to say the least. Most lenders would shut their doors on you outright as you will generally be seen as a credit risk. However, not all of them will. Despite your less than perfect credit score, you may still be able to get access to extra funds through lenders that provide loans to bad credit borrowers.
What to expect from bad credit loans
To secure a credit loan, expect that the allowed amount you can borrow may be significantly lower. In addition, the interest rates could be higher. This is a way for lenders to manage the risks involved as a borrower with a low credit score is often seen to have a higher chance of defaulting.
There are things that you can do to bolster the security of the amount that you are borrowing. For instance, you can sign up for a secured loan. This is where you use a valuable asset to guarantee the loan. You can choose to get a guarantor too, which is a person with a good credit score who can guarantee that the loan will still get paid even if you default. Improving your credit score is not a bad idea as it will improve the chances of you getting a loan approval in the future. There are things you can do to improve your credit rating such as closing credit cards you no longer use, registering in the electoral roll, such as getting your debt consolidated to make paying them off easier.
Types of bad credit loans
There are different types of loans that people with bad credit scores can take advantage of. These include:
Unsecured loans. This is a personal loan that is not secured by a valuable asset. Loanable amounts can range from £20-£10,000 and loan terms can be up to five years, and will significantly depend on the borrower's credit score.
Secured loans. These are loans that are guaranteed against a property or any other valuable asset like a car. The idea is that if you fail to pay your due, the lender can proceed to sell the asset in order to pay off the outstanding balance. Considered as low risk, lenders tend to price these loans cheaper. However, buyers can lose their asset if they will fail to pay the loan back.
Guarantor loans. These loans allow bad credit borrowers to get access to good loan amounts at even more competitive rates thanks to the presence of a guarantor. This could be a family or a friend who himself has a good credit score that will then back the application and agrees to pay it back in the event that you couldn’t.
Short-term loans. Known for the lenient criteria by lenders, this is ideal for those with bad credit who needs to borrow around £100-£1,000. Repayment periods can range from one week to a year.
When your credit score is not that good, getting approved for a loan may be difficult to say the list. Lenders are known to put a lot of weight on a borrower’s credit score when deciding whether to approve an application or not.
While it is true that there are a number of factors that lenders will look into before deciding whether a borrower is worth the risk or not, the credit file still holds the most weight. Banks and lenders will want to look at your credit history to find out if you would be trustworthy enough to lend money to. Still, different bans have different criteria when deciding who to grant a loan to or not. So, getting rejected by one does not mean that you will meet the same fate when you try other lenders.
Why your score is low
A credit score is the measure of the creditworthiness of a borrower. If you have had debts in the past that you were able to manage considerably well, getting credit in the future shouldn’t be a problem. But if you’ve had missed or late payments on loans, these will show up on your records and could have an adverse effect on your score. More serious financial issues such as a bankruptcy is bad for your credit rating too.
Expect high interest charges
Most lenders are wary of borrowers with credit scores that aren’t so stellar. However, there are lenders that are willing enough to give these borrowers a chance. There is a downside though. Since they need to offset the risks attached to these loan applicants, the price is a much heftier interest rate. Loans for bad credit are generally going to be pricier compared to standard loans.
Just because your options as a bad credit borrower may be limited doesn’t mean that you should sign up with the first lender willing enough to lend you money. Take the time to look around and compare your choices to avoid getting into more debt trouble.
In addition, it is always best to think your decision of getting a loan through and make sure that you will not run into any issues paying it back or it will worsen your position even more when getting credit in the future. Mismanaging your past debts already caused you to be in this situation to begin with.
Fix your credit score
If your need is not that dire yet, you can spend time fixing your credit rating first before attempting a loan application. Check your credit file to ensure all the entries are accurate. You can register in the electoral roll too. Also, manage your current debts properly and get them paid on time. This can help you convince lenders that you have learned to be more responsible as far as your finances go thus, increasing your chances of approval.