If you have bad credit, it’s still possible that you might be able to get a bad credit loan. Here’s everything you need to know about these types of loans and what to do before you apply.
What are ‘bad credit’ loans?
A bad credit loan is a loan designed for people with a poor credit record, or no credit, to use.
Often, these types of loans will have higher interest rates than most other loans and the total lending amount will be significantly less. This supports the lender and reduces the risk of you being unable to make the repayments.
These credit lenders will look at your financial circumstances, rather than your credit score, to see what you can afford to pay back.
What type of bad credit loans can you get?
There are different types of bad credit loans that you can borrow:
- Payday loans
These types of loans are often short-term and cover immediate needs for cash until you next get paid. Payday loans can sometimes be difficult to repay and can often end up costing more than expected due to the high interest rate that comes with most, so it’s important that you shop around for a reputable payday loan lender if you choose this option.
- P2P loans
P2P loans (or Peer-to-Peer loans) mean that you can take out a loan without borrowing from a bank and instead borrowing from a group or individual. People who are looking to earn interest on their money will be paired up with people needing to borrow it with a payback interest rate of which they both agree on.
- Guarantor loans
As Quidable says; these are like personal loans but require a third party to agree. This is usually a family member or friend who will ensure the loan is repaid. If you don’t keep up with your repayments, the guarantor will then be liable and chased for the additional debt. For some people with bad credit history, this is often the only way they can borrow a larger loan.
Things to remember
The main purpose of a ‘bad credit’ loan is to give you access to funds without worrying about your credit ratings. However, there are some additional perks:
- You’ll be able to choose from flexible repayments and have a say in the length of the loan term / how much you can repay month by month.
- Some charges might be waived (depending on the lender), so you might not have to pay early repayment charges.
- Lenders are still lenient if you have a CCJ.
- For an unsecured personal loan, you won’t always need a guarantor – check with your lender.
Remember that there are many sources of free financial advice that could help you if you are struggling to make payments on existing debt. Personal bankruptcy is a real possibility if you cannot afford to make obligated payments, therefore always consider whether there are any cheaper alternative sources of finance before utilising credit design for those with a poor credit history.
Books about getting out of debt are another option for those who want to assess their options without committing to high fees or a debt plan.