Borrowing money with a bad credit score may seem difficult, but there are financial products available especially for your circumstances.
It can be a real challenge trying to borrow money when you have a poor credit score, and your options may feel limited. If you have defaulted on a financial agreement, missed repayments, or have yet to borrow money and no credit cards, it all shows in your credit history. Lenders often do not want to deal with risk, but some are changing the way they lend money to provide for those with poor credit scores.
What is a bad credit loan?
A bad credit loan is the name for a product for those with poor credit history, who will struggle to get credit. Due to the type of loan, interest rates tend to be higher than on standard financial products, but provide good options for those with an imperfect credit history.
Why are they called bad credit loans?
Bad credit loans are offered to those whose credit history is less than perfect. You may be in this situation if you have got CCJs, account defaults or missed repayments, you are retired, self-employed or are yet to build up your credit history. They are available as an option if your credit history shows you have had challenges managing money in the past. It is important to think carefully about your situation before you decide whether or not to apply for one.
Types of bad credit loan
Guarantor and unsecured loans are two of the types of loan offered to those with bad credit. Guarantor loans allow you to borrow money by designating a friend or family member to guarantee the loan repayments. Your guarantor then becomes liable to pay off your loan if you do not make the repayments. An unsecured loan allows you to borrow money without needing an asset such as your home to act as collateral.
Advantages of a bad credit loan
A bad credit loan allows you to borrow money, which can feel like a lifeline for those with poor credit history, who are struggling to get credit with standard products. Taking out a bad credit loan could also help to improve your credit rating, and get you back into a much more positive position. Making sure you keep up with the repayments will demonstrate to lenders a good record of repaying debt, and will work in your favour to improve your credit score.
Disadvantages of a bad credit loan
The main thing to consider is that interest rates are likely to be significantly higher than for standard credit products, so bear in mind that the longer the term of repayments, the more you will end up paying in interest. It is important to work out if you can afford the monthly payment - if you do not keep up with repayments, it will seriously affect your credit score.
Should I apply for a bad credit loan?
The bad credit loan may be a good option if you have been struggling to get the credit that you need however, as with all loans, you need to be aware of the costs involved. Establish what the fees and charges are, and work out the interest, so you know the full extent of the product you are applying for, and can afford the repayments. It is important to always do your research to find the best product to suit your circumstances.