If you have a very poor credit rating, you might think obtaining a loan is going to be next to impossible. With a bad credit rating, your borrowing capability seems to be doomed regardless of whether your situation has improved. However, obtaining very bad credit loans is possible, regardless of your credit history.
Explaining Credit Ratings
Before delving into the types of loans, we want to explain credit ratings.
Credit ratings are extremely hard to understand. You might have applied for credit recently only to find out you have not been approved because you have a bad credit rating. What exactly is a bad credit rating and to what degree is your credit rating bad?
Your credit rating is your credit score and this is placed on you, by not one but three main credit reference agencies. These are:
With each of these credit referencing agencies, you will receive a score. With Equifax, a good credit score is anything over 600. With Experian, a good score is 700 and with Noodle, a good credit score is a 3+ on a rating of 1 to 5.
This means that with Equifax you would need to have a credit rating of 600 to be deemed in good credit and with Experian, a rating of 700 would be classed as good.
Anything below these scores is heading towards a poor or bad credit rating, the lower the score.
The credit referencing agencies take into account:
- The amount of credit you have, including loans, credit cards, and mortgages;
- Your payment history over the last six years and whether or not you have been late paying or missed payments;
- Any CCJs you have;
- How often you apply for credit.
This all goes towards your score, which the lender takes into account before approving or denying a loan.
If you have a credit score of around 900, the world is going to be your oyster when applying for a loan. You will be more than likely approved for a loan with the lowest rates of interests and best deals. On the other hand, if you have a credit rating of around 450 you will be classed as having a poor credit rating, lower than this your credit rating is considered to be very bad.
This is not to suggest that you will not be able to get a loan. However, you may struggle and generally not be accepted for loans with the best deals and lowest rates of interest.
Choosing Very Bad Credit Loans
While your chances of borrowing with a very bad credit rating look slim, not all lenders focus solely on your past and your credit rating. This means there is a ray of light at the end of the tunnel. There are numerous benefits to looking for your loan for bad credit through us.
Competitive Rates for People with Bad Credit
We work to match people with bad credit history up with lenders who offer highly competitive rates even to people with a poor credit history. This means that while you can expect any loan you are approved to come with a higher interest rate than someone with a good credit rating would get. The rates are competitive based on your circumstances.
Some Loans Are More Suited to Those with Bad Credit
Here at Bonsai Finance, we provide access to numerous loan options. This includes loans that are more suited for those with a bad credit rating. We work with a range of lenders that are extensive, to match people with bad credit to lenders.
Lenders Who Focus on the Present Not the Past
While all lenders in the UK will undertake a credit check, there are both soft and hard credit checks. A soft credit check means that the lender will not delve deep into your credit history and undertake a full check.
Generally, when you make a search on your own to find loans with bad credit and apply for loans, the lender will make a full credit check. If you have a bad credit rating, they may turn you down but the fact that you have applied for credit will be on your file and this goes against you. You can enter into a vicious circle of having poor credit, applying and being turned down for loans, it is noted on your credit file and you lose a few more points on your credit rating.
If you have a bad credit rating and the lender only undertakes a soft credit check or does not focus too much on your credit rating this is good news for you as you are more likely to be approved for a loan. Another benefit is that a soft credit check does not affect your credit score, as it is not registered. We work with lenders who concentrate more on your ability to repay the loan than what happened in the past to give you a bad credit rating. This means they consider the fact that you are working and have regular income coming in that makes the loan affordable to you.
The Types of Loans You Might Get Approval For
There are different types of loans out there but people with bad credit might be approved more easily for some more than others.
The types of loan include:
- Guarantor Loans;
- A Short Term loan;
- A Personal Unsecured Loan.
People with bad credit may be in a position to apply for and get approval for any of the above loans.
A Guarantor Loan – The Easiest Loan to Get With a Bad Credit Rating
If your credit rating is very bad, the guarantor loan may be the type of loan you will be approved for the easiest.
On saying this, it might not be the best type of loan for you. This is attributable to the fact that to take out a guarantor loan you will need someone who is willing to sign up for the loan with you. This can be a relative or friend willing to undertake the responsibility of the repayments of the loan if you should falter on them.
This means the lender is in a better position and the loan is not at risk as there is a guarantor behind you.
The guarantor loan is one way of being approved even with a very bad credit rating but it comes at some cost. Usually, the rates of interest are higher than on standard loans owing to the risk the lender is taking. On saying this, we work alongside lenders offering the most competitive rates based on the fact you have a poor credit rating.
The guarantor will usually have to be a homeowner or be able to show the lender they have the funds to cover the loan if you default on it.
This leads us to another downside. Putting friendship and relationships at risk by asking someone to be the guarantor, and worse still having the repayments fall back onto them if you find you cannot repay the loan.
A Short Term Loan for Emergency Cash Can Help to Rebuild Your Credit Rating
Depending on the amount you want to borrow and when you can repay the loan you might want to consider a short term loan.
Short term loans can be taken out with the lenders we work with from £100 and up to $5,000 over as little as 3 months and up to 36 months. A short term loan is one way of getting approval and your hands on money fast if there is an emergency.
The benefit of taking out a short term loan is that you do not have to have a guarantor behind you. Another benefit is that you can help to rebuild your credit rating by borrowing a small sum of money and paying it back quickly.
For instance, you might need to borrow £150 to pay for new tires on your car or an emergency that crops up. You could repay the loan in as little as 3 months. By doing so, you will pay less interest than had you taken the loan out for longer. It will also show the lender you are trustworthy and responsible.
A short term loan for bad credit is a means of getting back on the borrowing ladder. The loan will be reflected in your credit file and will be noted when you have paid it back. Providing you paid it back without being late with the repayments, there is a very good chance the lender will give approval in the future. This way you can slowly build up your credit score by proving you are trustworthy.
A short term loan may be considered in any situation where you find yourself in need of a small sum of cash urgently.
A Personal Unsecured Loan – Fixed or Variable APR
Depending on how bad your credit rating is, will all depend on whether you can get approval for a personal unsecured loan with fixed APR or variable APR.
A fixed APR means that the rate of interest you repay on the loan will remain fixed. For example, if you take on a loan with an interest rate of 34% APR this is the rate it will remain at throughout the term of the loan.
A loan with variable APR means that when the Bank of England interest rates fluctuate (up or down), the APR also changes. For instance, you might take out a loan that starts at 29.9% APR but over the length of the loan, the interest rate might go up to 34%. This means you would end up paying more interest over the period. Of course, it could work the other way and the interest rate might go down, in this case, you would pay less interest.
One of the principal benefits of the fixed rate loan is that you know exactly how much you will be paying back over the term of the loan so there are no nasty surprises. If the interest rate did go up so would the monthly repayments. This could end up meaning the monthly loan repayments were unaffordable.
A personal unsecured loan might be suitable if you want to borrow a large sum of money, up to £5,000 and spread it over as long as 36 months.
Eligibility for a Loan for Bad Credit
So that we can match you up with lenders, we do need to ensure that you are eligible for a loan. This means you must:
- Be a resident of the UK;
- Be at least 18 years old;
- Have a bank account in your name;
- Own a debit card;
- Be able to set up a direct debit for the loan repayments;
- Have a reliable source of income.
Of course, always make sure you could repay the loan. Any late or missed repayments will affect your future borrowing, as it will be noted on your credit file.
We offer people with very bad credit ratings the chance to get back on the borrowing lender by matching them up with lenders.
It is never easy finding a loan if your credit rating is poor but here at Bonsai Finance the lenders we work with care more about your ability to repay the loan than the past. They base their loans on your verifiable income not your credit rating.
We offer a simple application and within just minutes, you know if you are accepted. As there is no paperwork, the money could be in the bank account within a day or two.
Check out how much you could borrow with very bad credit loans with our easy to use calculator.