Bad credit loans are designed for people that have a poor credit history or a limited credit history. You might even search for no credit check loans. Bad credit can be caused by a number of reasons. Some have defaulted on or failed to repay previous loans on time. Others have had a County Court Judgement (CCJ) issued against them. People who have a limited credit history may have never applied for a loan or credit card before. Both types of credit, bad and limited, pose problems to lenders. This is because they cannot properly assess a borrower’s ability to repay the amount borrowed. Specialist loans like bad credit loans are available to help people repair or rebuild their poor credit records.
Why Choose Bad Credit Loans?
Bad credit loans, sometimes called adverse credit loans, were created specifically for consumers with a poor credit history or a limited credit history. These loans are available to persons over the age of 18 and actively employed.
Bad credit personal loans are beneficial for some consumers who need to consolidate debts. Many traditional lenders avoid issuing bad credit loans but subprime lenders will issue such loans to consumers who are, for whatever reason, unable to get credit from a traditional source like a high street bank. They help consumers who have set a goal of securing a bad credit loan in order to improve their credit rating. This can be achieved because they pay one lender on time and in full every month.
Types of Bad Credit Loans
Subprime lenders offer both secured and unsecured loans. Unsecured loans are typically reserved for smaller loan amounts (less than £35,000) and carry higher rates of interest. The benefit is that they require no collateral and property owned by the applicant isn’t at risk if payments default.
With a secured loan, however, the rate of interest is usually lower because the applicant has agreed to use their home or other valuable asset as collateral for that loan. This means that their property is at risk and can be collected by the lender if they cannot make their payments.
Pros and Cons of Bad Credit Loans
Once you’ve considered the above, you can go through the lists below, to more easily weigh up your options.
- The biggest advantage of bad credit loans is that these loans give people with bad limited credit histories a chance to borrow money when they need it.
- They can provide a real financial lifeline to people who need a loan to cover a major purchase or consolidate other debts.
- Personal loans for bad credit can also help people who have a poor credit rating repair their credit status.
- Provided that payments are made on time, borrowers can once again demonstrate that they manage money responsibly.
- The biggest downside to receiving a bad credit loan is the high interest rates required.
- Interest rates are normally very high compared to standard loans because of the risk lenders face with default.
- Most applicants who apply for bad credit loans have had problems managing their finances previously. They are, therefore, considered a high risk for lenders.
How and When Do You Need a Bad Credit Loan?
Most of us have experienced a time in our lives when we were deemed to have “bad credit”. This can be for a variety of reasons; young adults who have yet to establish credit accounts, single parents who struggle financially, divorce, or simply being unskilled in managing finances. It is a universal stigma; we are our credit scores. So, how do we approach obtaining a loan when we are “high-risk”? There are several options out there; some of them come with a steep price. Bad credit loans can be one of the options available.
Do the Ground Work
The best advice is to do the ground work. Start with your credit score. There are several ways to find out what your basic number is, for free. The easiest way is to go through your bank. Most banks have an online presence where you can do all your banking right there. Several of these will have a place to get a look at your credit score. If it is low, and you want to know why, it may be worth the investment for you to delve into your credit records.
What Should You Know Before Applying for the Loan?
You know the following before you apply for any kind of loan:
- Is there anything that can alter your circumstances while affecting your ability to make payments?
- Do they charge an interest rate, variable or fixed?
- How important is your credit ranking to get your loan approved?
- Can you afford repayments on a monthly basis?
- Any chance to make repayments before the scheduled time?
Find a Lender for Bad Credit Loans
If you’re searching for direct lenders for bad credit personal loans, there are several lenders in UK to get you quick bad credit loans and you can dig down to find the most appropriate option. Once you have completed the base work, it is time to find the right loan for you! There are several types of loans out there, even for low credit scores. If you are looking for a small loan and you have already been rejected because of bad credit or no credits at all, then why not try a bad credit loan.
Understanding APR Rates
The first thing to look for is the affordability of a loan. If you have bad credit, then a loan is going to be more expensive, but it’s still important to shop around. By law, lenders have to advertise an APR rate to show the cost of the loan. This figure should include all normal fees for supplying the loan, such as administrative costs, as well as the interest rate on the loan. However, it’s important to remember that it is a ‘representative figure.’ This means that it is not necessarily the rate you will be offered for the loan you apply for. Lenders only have to award that rate to 51% of their customers, so the rate you get could well be different.
It also makes sense to bear in mind that the APR figure is calculated for a whole year. So a £150 loan for two weeks, even from a payday loan provider charging 4,214% APR, would cost you £27.25 – so you’d pay 18% interest. That is a lower rate of interest than most unauthorised overdrafts. So although it’s not ideal to take out loans at such high rates, as a short term loan, it isn’t quite as exorbitant.
TAR (Total Amount Repayable)
A far better way to work out the cost of a loan is to ask the lender for the Total Amount Repayable. This figure would normally include the entire interest payable throughout the life of the loan, and the fees and charges payable.
Hidden Fees and Charges
Unfortunately, some lenders hide their fees and charges from the unwary customer. You need to know exactly when you will be charged, and how much if you default. This will increase the cost of the loan, and in some cases, the money may be taken straight from your bank account, so you could also be hit with bank charges.
Early Repayment Terms
If possible, choose a lender who will let you repay the debt before the end of the loan term without charging a penalty. This will enable you to save money.Apply Now!