Choosing the right loans for poor credit UK is crucial to how easy you will find it to get approval for a loan with a less than perfect credit score. Knowing which types of loans come with a better chance of approval, is half the battle and saves you time and energy instead of focusing on loans you have little chance of finding approval.
If you have a bad credit rating and need a loan you should take into account your chances of approval might increase if you:
- Only ask to borrow a small amount of money;
- Only take the loan out for a short term;
- Prove you have a regular income coming in;
- Can show you have enough disposable income. This is the amount left after paying off bills and living expenses.
Two Popular Loans for Poor Credit UK – Payday and Short-term
Two of the most requested loans and popular in the UK by people with poor credit ratings are the payday and short-term loans.
Both loans come with a good approval rate for people with poor credit ratings. This is because they offer only small sums of money and are repaid quickly.
Lenders are more willing to say yes to small amounts that are repaid quickly as they do not class you as being a big risk even with a poor credit rating. Of course, you do have to show you have a regular income and you can afford the loan.
How a Payday Loan Works
Lenders will usually offer £100 to £500 with payday loans. The loans are popular with people who need money quickly to cover an unexpected financial outlay.
If approved money may be paid into your bank account on the same day. This is why you have to give your bank account details when applying for the loan.
You agree to repay the loan within one to three paydays and the lender takes the repayment directly from your bank account on the day or days you are paid.
When considering borrowing with a payday loan the longer you spread the repayments over, the more the loan is going to cost as interest is calculated on a daily basis. Therefore, borrowing over three months is going to cost three times as much in total when compared to borrowing for one month.
How a Short-term Loan Works
A short-term loans falls in-between the payday loan and personal loan. Depending on your circumstances and loan affordability, you might be able to borrow up to £1,000.
Lenders may give you up to 12 months to repay the loan, but this is going to depend on the lender.
It can be tempting to spread out a loan to help keep down the monthly repayments but bear in mind the longer you take to repay, the more the loan costs in total as interest is added on.
How much you pay in interest is dependent on the APR of the loan. The higher the APR the more interest, so the more the loan costs in total over the term. Of course, with a poor credit rating you will not be able to access the lowest rates of interest. Lenders charge a higher rate due to the fact they see you as being a bigger risk.
To take out a short-term loan you agree with the lender on the amount you want to borrow. You then tell the lender how long you want to take the loan over. After making an affordability check they will approve or deny you the loan.
If approved you can sign up online and the monthly repayments will be taken from your bank account until the loan is repaid.
Borrowing Larger Sums
You might find yourself in a position where you need to borrow a larger sum of money.
With a poor credit rating, you might find it difficult to obtain approval. If this is the case, a guarantor loan might be more appropriate.
You will have to find someone to be a guarantor for you. It cannot be a spouse or partner but should be someone who knows you well, such as a friend or other relative. If you cannot repay the loan, they take over the repayments.
So, as you can see from above, choosing the right loans for poor credit UK can make a huge difference to approval.
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