If you are in need of a loan, one of the first areas you have to investigate is your credit score. Your credit score is a number that lenders will use to assess whether or not they consider you to be a viable candidate for a loan.
It’s important to note that, despite popular belief, you don’t have a single, fixed credit score. Your credit history is actually held with a number of different companies. Each of these uses different methodology for deciding your credit worthiness. Before you begin a loan application, it’s well worth checking what your credit score is with the major credit reference agencies. In the UK, that means obtaining your credit score from Experian, Equifax, and CallCredit.
If you obtain your credit scores from all three agencies, you will find yourself processing good news or bad news. If the news isn’t good, and you need to borrow funds in the near future, then your best option is likely to be a loan suitable for people with bad credit.
What are bad credit loans?
Bad credit loans are loans that are designed for those with poor credit ratings. They can provide you with lending even when conventional lenders may turn you down due to a less-than-perfect credit score. This makes them a viable option if your financial history is somewhat chequered.
The one downside of bad credit loans is that the interest rates tend to be higher than you may find with conventional loans. The potential for high interest rates is why it’s so important to compare companies that offer personal loans for bad credit. This way, you can be sure that you’re achieving the best possible loan arrangement for your circumstances.
How can I tell if a loan is suitable for bad credit?
If you have seen a loan advertised and aren’t sure if it’s suitable for bad credit, look into the small print of the advert. If you see a higher-than-normal interest rate (anything over 20%, for example) then there’s a good chance that it is suitable for those with bad credit.
However, for the most part, you’ll be able to tell whether a loan is suitable for people with bad credit by the wording of the advertisement. Bad credit loans are usually advertised as such, so there’s not too much guesswork involved!
What are my options when considering a bad credit loan?
Now you know what a bad credit loan is, you need to know the details on the loans that fall into this category. The options below would always conventionally be considered to be ‘bad credit’ loans. All may be worth considering if you are in need of borrowing, but your credit score is working against you.
Payday loans are arguably the most well-known bad credit loan. These loans are short-term in nature; most are usually repayable within four weeks. The amounts involved tend to be lower also.
The downside is that payday loans are notorious for their incredibly high interest rates. This can mean that you pay back almost as much in fees as you borrow in the first instance. However, if you’re in need of funds quickly and are unable to access conventional borrowing (such as an extended bank overdraft), payday loans may be a viable option for you.
If you wish to borrow a higher amount or repay it over a longer period of time, then standard bad credit loans may be suitable for you. Whether you can access these products depends on your credit score and your personal circumstances. We at Bonsai Finance allow you to compare bad credit loans and see which might be suitable for you. This is well worth giving a try if you’re looking for a loan that is fairly standard, but as more flexible lending requirements.
It is worth noting that these kinds of loans also tend to have a higher interest rate. This helps to offset the risk of lending to someone with a less-than-ideal credit profile for the lender. If you are offered a standard loan for people with bad credit, make sure you read through the terms and conditions. It’s essential that you know exactly what you are going to pay back in future.
Finally, you may want to consider guarantor loans. These kinds of loans are often simpler to obtain than standard loans for people with bad credit. They can offer much more manageable interest rates, too.
However, guarantor loans do have one major distinguishing factor from other personal loans for bad credit. They will require a second signatory. You will need to apply for the loan with a friend or family member who has good credit. This person becomes financially responsible for the repayment of the loan if you default. As a result of this rather complex arrangement, you have to be certain that you are going to be able to meet the repayment terms. If you don’t, the person who has been kind enough to act as your guarantor will have to cover the costs themselves.
Nevertheless, guarantor loans are a good way of accessing more affordable credit than you may otherwise be able to.. If you and your chosen guarantor are happy with the arrangement — and are sure it will not impact your personal relationship with one another — then this is an option you’re definitely going to want to consider.
The options above are all worth considering if you have a poor credit history and are in need of a loan. It’s best to narrow down your choices to just a few areas so as to limit the potential impact of searches on your credit score. When you have made your choices, go through them one-by-one. Again, this helps to protect your credit score from too many searches.
Hopefully, you will find that one of your chosen methods of obtaining bad credit is able to deliver the results you need. And remember, with Bonsai Finance, you can compare bad credit lending from a range of sources and see where you may be able to successfully borrow from.