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Bad credit can make you feel like you don’t have any options when it comes to taking out a loan. You may have been turned down by more traditional lenders, and believe that they are the only option available. But this is not the case. Even if you have a poor credit history, you should still be able to access credit when you need to.
So how do you get a loan with bad credit? The first thing to consider is what types of loan there are available to those with a less than perfect credit score.
Regardless of your credit history, you should still be able to take out further credit. You may end up paying higher interest rates than with a bank loan, for example. But as bad credit loans tend to be shorter term, you may not pay back much more overall.
There are various types of loan for bad credit, and many lenders specialise in such loans. We’ve listed the main types of bad credit loans below:
A short term loan will typically be repaid over a few months or years. You’d generally pay back in instalments of the same amount each month, rather than by fluctuating interest rates. This makes short term loans easy to budget for.
Short term loans allow you to borrow more money than a payday loan, as you can spread the cost over a longer period of time.
A payday loan is intended for a smaller expense than a short term loan. Whereas with a short term loan you’d pay back over several instalments, a payday loan is repaid in one lump sum – usually on your next payday.
The main benefit of a payday loan is that because you only pay back interest for the time you borrow the money, you probably won’t pay back much total interest. As interest is almost always given in APR (Annual Percentage Rate), it looks particularly high with payday loans, which are paid back after a couple of days or weeks. But if you were to borrow £100 over 7 days, you’d only pay around £5 in interest.
Like short term loans, guarantor loans are typically paid back over instalments. The main difference is the need for a guarantor – someone with a good credit history, and optimally a homeowner. Your guarantor acts as security for your loan. They agree to make the due repayments if you are unable to do so.
As there is less risk for the lender with a guarantor loan than other types of short term credit, the interest rates are often lower. The downside is that it’s not always easy to find someone close to you to be your guarantor. It can be difficult to discuss your finances with friends and family, and you may not want to ask them to act as a guarantor for your loan.
Once you have determined the type of loan that best suits you, there are a few ways you can then find the perfect lender. There are a number of bad credit lenders on the market, so you’ll want to find the one that can not only meet your needs, but is also likely to approve your application.
One option is to start researching the different UK lenders available. You’d need to consider things like their eligibility criteria, the interest rate offered, and whether there are any fees or charges. You may also want to read a few company reviews, to get a feel for the lender’s customer service.
Obviously this can be a fairly time consuming process. If you don’t know much about finance or loan lenders, you may not know where to start. For this reason, a lot of people choose to use comparison sites or broker services.
With a comparison site, you can review the interest rates of the lenders listed. While this is a fantastic tool in most cases, if you have bad credit, comparison sites are not always able to let you know which lenders are happy to consider your application.
Once you have compared the interest rates of the lenders, you would then need to check the lending criteria, to see if bad credit loans are offered.
Like a comparison site, a broker service can compare a large number of lenders for you. The main benefit of a broker is that they can also determine which lenders are most likely to pay out your loan. Using clever algorithms they will use the information in your application to check whether you meet all the eligibility criteria of the lender you’re matched with.
It is important to check whether the broker you’re working with charges a fee for their services though. You can rest assured that My Financial Broker works on a commission basis with our lenders, so our services are completely free for our customers. So if you’re looking for a bad credit loan UK, we can help!