If you’ve got bad credit, you may not be sure how to take out a loan, or if you’d be eligible. While it can be more difficult to take out certain types of loans if you have a low credit score, you should still be able to borrow money when you need to.
But what sort of loans would you be able to apply for, and how can you improve your chances of approval?
Bad Credit Loans
If you have a poor credit history, it may be comforting to know that there are a number of lenders that specialise in bad credit loans. These include both secured and unsecured loans, though unsecured loans are more typical. Bad credit loans are usually short term loans, with lower lending limits.
The most common types of bad credit loans are payday loans and guarantor loans. With a payday loan, you would borrow money for a few days or weeks, and then repay the loan on your next payday. With a guarantor loan, you would need to find a guarantor who will make the repayments should you be unable to. The benefit of a guarantor loan is that if your guarantor has a good credit rating, you are very likely to be approved.
Improving Your Credit Score
You should be able to take out an unsecured loan regardless of your credit score. But if you are looking to take out a secured loan, or a more traditional bank loan, you can boost your chances of approval by working to improve your credit score. If you’re unsure what your current score is, you can check this for free using sites like Experian and Credit Karma.
There are a number of easy ways to increase your credit score. Firstly, it’s a good idea to check your credit file for any mistakes. If you have any incorrect or dated information on your credit file, this can impact your credit score. There are three main credit reference agencies in the UK – Experian, TransUnion and Equifax. You can request to view your full credit report from any of these organisations, though it may cost a small fee.
Another common problem people have with their credit score is their credit footprint. If you have never taken out credit, this can be as bad as having negative marks on your credit report. As lenders can’t see how you manage your money, they don’t know if it would be a risk to lend to you. A lot of younger people experience this issue, but it’s easy to rectify – you simply need to take out credit and make the repayments on time.
- There are a variety of bad credit loans available, though it is typically easier to get an unsecured loan if you have poor credit
- If you’re looking to take out a secured loan, it may be a good idea to try and improve your credit score – you can make sure that there are no mistakes on your credit file, and take out credit if you have no credit footprint
- The main disadvantage of bad credit loans is that the interest tends to be higher than with secured loans or bank loans
- The main advantage of a bad credit loan is that your credit history is less important than your current financial situation, and you’re likely to be approved for a loan even if you have a low credit score
The Pros and Cons of Bad Credit Loans
If you have an unexpected expense, you may need to get a loan in order to cover the cost. And should you have a poor credit history, your options may be more limited. If you’re thinking about taking out a bad credit loan, we’ve listed the pros and cons below:
Cons of Bad Credit Loans
The interest rate is typically higher than with secured loans
While some lenders treat all loans the same when calculating your credit score, others may assume that taking out a bad credit loan means you’re struggling with your finances
The lending limit is often lower with bad credit loans, so you may not be able to borrow a large amount
Pros of Bad Credit Loans
While the interest rate is usually higher with bad credit loans, as people tend to borrow for shorter periods of time, they often pay back less interest overall
Taking out credit can give you a credit footprint, and paying back loans early or on time can help improve your credit score
Bad credit loans are more easily accessible than secured loans – your application is likely to be approved, regardless of your credit history
After weighing up the positives and negatives, if you’re looking for a bad credit loan, My Financial Broker can help. You can use our completely free services to compare lenders and find the best rate. We’ll search our panel of lenders, and help you find a lender that is likely to approve your application!