We all find ourselves in tight financial spots every now and then. But if you have bad credit, loans can be increasingly hard to secure, with banks and financiers less willing to lend to more ‘risky’ borrowers who could potentially damage their bottom line.
Bad credit loans offer exactly what they say on the tin: loans for people with bad credit. While this may seem like the perfect quick-fix to all your financial woes, it’s important to take a number of factors into consideration before applying. Today, we’ll break down the most important so that you can make a fully informed decision on whether one of these loans are right for you.
What factors are considered in my application?
Unfortunately, loans without a credit check simply don’t exist. Whenever you apply for a loan, banks will consider both the details on your credit report and other information regarding your current financial status to give you a credit score.
Contrary to popular belief, there is no universal single credit score, with each lender calculating your score in their own independent way. Though evidence of your ability to manage debt always plays a fundamental role in the calculation, being rejected by one bank doesn’t necessarily mean you’ll be rejected by all.
This is especially true for first time borrowers, who may, perhaps surprisingly, find it hard to be granted that first loan. This is because, without a credit history, lenders have no way of deeming whether or not you’re a ‘trustworthy’ borrower, often preferring to play it safe than sorry.
Can I afford the high interest rates?
For those mainstream lenders that offer bad credit loans, there’s often the catch of excessively high interest rates. While high-street lenders may advertise temptingly low-rates of interest, the reality is that these almost never apply to loans for people with bad credit.
Remember, your credit score will vary per lender, so search around for the best loans for bad credit based on the interest rates offered. Once you’ve found the best deal, it’s vital you consider whether you’re able to confidently manage these debts and make the regular repayments before you apply.
Which type of bad credit loan is right for me?
Once you’ve found the lowest interest rates, and only if you’re confident in your ability to make repayments, it’s time to consider which type of bad credit loan is right for you.
Guarantor loans are one of the more popular loans for people with bad credit, as they often feature more reasonable repayments than other forms of available loans. This is due to the requirement of a guarantor (usually a friend or family member) who agrees to make the repayments if the borrower can’t.
It’s important to consider whether you have a trustworthy and reliable guarantor, as well as if you have a strong enough relationship with them to ask for this big commitment, before applying for this type of bad credit loan.
Logbook loans provide a bad credit loans alternative for those who don’t have a guarantor but do have a roadworthy car with decent value. However, it’s once more vitally important that you’re confident in your ability to make repayments, as this could otherwise result in the repossession of your vehicle. Read more about car finance here.
The final option is a payday loan, the most common of loans for people with bad credit. Lending small amounts of up to £1000 to cover any unexpected payments before payday, these fixed-term loans often come with incredibly high interest rates. Be sure to consider whether you can afford these, weighing up whether the borrowing amount is worth the overall repayment costs, before applying for these types of loans – as there’s almost always an alternative option that will save you paying over the odds.
If you’re still on the fence regarding whether bad credit loans are right for you, or would simply like to know even more about them, check out our straightforward guide here.