Loans are not the easiest of things to try to get your head around and more so if you have a less than perfect credit rating and wondering what type of loan is most suitable. With this in mind, we thought it would be a good idea to bring together everything you need to know about loans for poor credit. So if you want to know more read on.
There Are No Specific Loans for Poor Credit
First thing is first. There are no specific loans available for people with poor credit. People with a poor credit rating can apply for the same loans that people with a good credit rating apply for. The only difference is that people with a poor credit rating might stand more of a chance of obtaining certain loan types than others.
Do You Meet The Criteria For Borrowing?
There are some criteria set out by lenders that you have to meet to ensure eligibility for a loan in the UK.
- At least 18 years of age;
- A resident of the United Kingdom;
- Have a regular monthly income;
- Hold a UK bank account with a debit card;
- Direct debits can be taken from the account.
What Types of Loans Are Best To Apply For With Bad Credit
First, we are going to focus on what types of loans might be best to apply for if you have bad credit and why these loans might be the most suitable for people with a less than perfect credit rating. In order of which loan might be the easiest to find approval for they are:
- A payday loan;
- A short-term loan;
- A guarantor loan.
The above three loans are the easiest to be approved for but there is no guarantee. Approval is down to the lender and whether they think you can afford the loan. However, with the first two loans, the sums of money borrowed are relatively small and the loan is repaid back quickly. These two loans are similar in that you do not need anybody to stand as your guarantor.
The guarantor loan differs in that you cannot apply for the loan unless someone will sign up to say that they will guarantee the loan repayments, but more about this later. First, let us look at the payday and short-term loan, as these are among the most popular that people with a poor credit rating apply for with high approval rate.
What’s The Difference between the Payday Loan and Short-term Loan
The payday loan and the short-term loan share one main similarity; they are both loans that are taken out over the short-term. The difference between them is the term of the loan. The term of the loan is how long you take the loan out over.
Another difference between the two is the sum of money you might be able to borrow with the payday loan and the short-term loan.
What You Need to Know About the Payday Loan
The payday loan is often thought of as being an emergency loan. This is because the loan is quick to apply for and pay out if you are successful with your application.
This type of loan is also known by other names and these include:
- Fast loan;
- Quick loan;
- Same day loan;
- Cash advance loan.
Don’t Payday Loans Have A Bad Rating?
You might be apprehensive about applying for a payday loan, as there has been a lot of bad press about them. Initially, some companies did charge high rates of interest and fees but since 2015 the FCA began regulating the industry and now there is a daily cap on the interest and fees added onto the loan, this is 0.8%. This means that payday loans are not the high-cost loans they once were. On saying this, it is a relatively expensive way of borrowing when compared to a personal loan.
Of course, the loan comes with many advantages with the biggest being you can get hold of cash on the same day. If you are confronted with a financial emergency this is a godsend. Providing you know you can afford the loan and you are not going to be left short on payday when you repay the loan, the payday loan is one option to consider.
In short, if you need to get hold of a small cash sum fast a payday loan might be worth considering. Loans of this nature can cause issues and debt, just like any other loan, if you cannot afford to repay it on the date or dates you agreed on.
Reasons You Might and Might Not Want To Consider a Payday Loan
You should also never consider a payday loan to pay off another loan. This can lead to spiralling debt due to high fees and charges. No loan should be relied upon to live on from month-to-month.
Payday loans can work in situations such as:
- Getting yourself out of an unauthorised overdraft so you do not incur huge fees associated with overdrafts;
- If you need to fund repairs for home appliances or vehicles;
- If you need to pay a final demand bill, you had forgotten about.
How Much Do Payday Lenders Offer?
While each lender may set out different criteria in regards to how much they will allow people to borrow with a payday loan it is generally between £100 and £500.
As the loan is generally taken out to cover a short-term financial emergency, this is generally enough money to tide you over and cover the shortfall.
When Does A Payday Loan Need Repaying?
When you apply for a payday loan, the lender will want to find out when you can repay the loan. Payday loans were originally repaid in one lump sum along with fees and interest on your next payday. Today lenders will allow you to extend the cost of the repayment of the loan for up to three paydays. This means it becomes a three-month loan.
While it might sound a good idea to spread the loan out longer, the loan is going to cost you more in fees and interest the longer you take it. Pay the loan back as soon as possible to keep costs down.
What You Need To Know About the Short-term Loan
The short-term loan is just as the name suggests, a loan taken out over a short period. Various loans, including the personal loan and secured loan, are taken out over many years and are long-term loans.
Reasons to Consider a Short-term Loan
You might want to consider applying for a short-term loan if you need to borrow more money than what the payday loan offers but you do not want to spread out the loan over the long-term as with the personal loan.
You can spend the money from the loan on whatever it is you want, as the lender generally does not need to find out why you need it. Loans of this nature can come in handy if you need to pay a big bill, make home improvements or purchase a good quality used vehicle for example.
How Much Do Lenders Offer With A Short-term Loan?
The amount you might be able to borrow with the short-term loan will depend on the lender and your circumstances.
Most lenders will offer between £500 and £1,000 and again they usually do not want to know why you want the loan.
When Does A Short-term Loan Need Repaying?
Short-term may differ between lenders with one lender classing six months being short-term while another might consider 12 months. Generally speaking, short-term loans are repaid within 12 months.
Bear in mind that the longer you take the loan over the more it will cost you in total in interest.
What You Need To Know About a Guarantor Loan
The last type of loan we are going to look at here is one that people with a poor credit rating often apply for and get approval and this is the guarantor loan.
The guarantor loan is not a suitable option of loan for everyone, as you do need someone who will stand as the guarantor. The guarantor is expected to take over the loan repayments if you find you are unable to manage them.
It is difficult to talk about finances with someone and it can cause friction. However, if you have someone and it is your only option for borrowing it is an option worth considering.
Reasons to Consider a Guarantor Loan
You might want to consider a guarantor loan if you have a very poor credit rating and you have been turned down for other types of loans.
How Much Do Lenders Offer With A Guarantor Loan?
Generally speaking, lenders we work alongside will offer up to £5,000 with a guarantor loan. This is going to depend on the specific lender, your circumstances and those of the person standing as guarantor. Bear in mind the guarantor cannot be a spouse or partner and they have to meet the same criteria as you.
When Does A Guarantor Loan Need Repaying?
If you apply for a loan with our help, the lenders we work with offer loans that can be spread out for up to 36 months. The length of a loan will usually depend on the lender and the amount borrowed.
Making a Loan Application Online
It has never been easier to apply for a loan as you can do it from the comfort of your armchair.
- Decide how much you can afford to borrow and repay back within the period you choose to take the loan over;
- Fill in your details on the website including name, date of birth, address and financial details;
- We search for a loan for you with a panel of lenders;
- You check out the loan details on the lender’s website to ensure it is suitable for you;
- Double check the loan is affordable before signing for it – this includes the interest and any fee that may be added onto the total loan;
- Make a note of when the repayments are going to be taken from your bank account;
- Sign up for the loan and the money will be paid into your bank account;
- Spend the money on whatever you want to spend it on;
- Repay the loan.
Things To Bear in Mind before Signing
Before applying for any loan make sure that you have considered everything that comes with taking on debt and you know you can repay the loan on the date or dates agreed.
Always check the total amount you have to repay as it can come as a surprise when the interest is added onto the loan.
Check whether there is an early repayment fee clause in the terms of the loan. This means that if you wanted to pay the loan off earlier than the agreed date the lender would charge you an early repayment fee.
When making the loan application always tell the truth when stating your monthly income and what you pay out each month. The lender may check this and want proof such as a bank statement. While it might be tempting to exaggerate your income, the lender does have to make sure that the loan is affordable; this is in your best interest.
By now, you should have a better understanding of what applying for a loan entails and the choices and options of loans for poor credit that are available. We work alongside a panel of lenders who offer affordable loans with highly competitive rates and who consider your circumstances more than focusing on your credit past.