My Financial Broker is a credit broker and not a lender. Warning: Late repayments can cause you serious money problems. For help, go to https://www.moneyhelper.org.uk/
Taking out a loan is both a serious decision and a serious commitment. For most people though, borrowing money is a necessity at some point in their life. Credit makes funding large purchases or tiding us over until payday possible.
Unfortunately, the current financial crisis has made borrowing very difficult. The amount that traditional high street banks are prepared to lend for credit purposes has become extremely thin. Loan companies, then, have filled a gap in the market, by enabling people who haven’t been successful in applying for a bank loan to access funds.
However, having a bad credit score makes applying for cash from a loan provider even more difficult. In fact a bad credit score may make a lot of credit providers dismiss a loan application before looking too closely at any other factors. As a result, companies providing bad credit loans have proliferated. This should be a good thing, but their terms can be harsh; some payday lenders charge an APR of as much as 4000%.
So how can you avoid bad credit loans in the first place?
The most important question to ask yourself is do I really need a loan? Take a look at your budget, and see if you can save for what you need first. If your cash just won’t stretch to saving, find out if you can borrow from friends or family. They might be able to help, as long as you commit to paying them back. Even better, they’re very unlikely to charge interest.
And if borrowing from friends or family isn’t an option, you can consider taking out credit. Though before you do this, it may be sensible to see if you can get a better rate, by doing things like boosting your credit score.
Lenders view your credit score as a record of your ability to repay a loan. So working on improving your score will enable you to access loans with more manageable interest rates. Firstly, check that your credit score is correct. You can order a copy of your credit report from one of the large credit record agencies such as Experian. If there are any mistakes, or if you have a good explanation for why you defaulted on a loan, you can have your report corrected or add a note explaining why there was a default.
And remember, if you take out a loan, ALWAYS repay it. That way, you will improve your creditworthiness.
The loans marketplace is a confusing one. There are hundreds of loan companies competing to offer a wide variety of loan products. For short term loans, there are numerous payday loan providers claiming to solve your cash-flow problems until payday. Often though, their charges and interest rates are not only very high, but contain hidden fees and charges. Always make sure that you know exactly what you will be re-paying, and don’t be tempted to ‘roll-over’ the debt for any longer than the original length of the loan. Any lender who is not clear and upfront about their fees should be approached with caution.
Finally, remember that short term loans can be a good idea to see you through a difficult time, but if you find yourself consistently struggling and in debt, finding a way to maximise your income is always the better long term solution.