If you want to borrow money and your credit history is less-than-fair, you will likely end up with a bad credit loan. These loans can be expensive because of the high-interest rate. Poor credit history makes your creditworthiness questioned, and you may have difficulty getting attractive interest rates.
Further, you will need a high-income source. In case of bad credit, you may be restricted to the borrowing amount and the size of the repayment term. Experts usually recommend borrowing money only during an emergency when you have an imperfect credit rating. Still, there are certain circumstances when you may need to borrow for planned expenses as well.
For instance, you need it to buy a car, or you may need it for your wedding expenses. Your poor credit history should not come in the way of meeting your financial goals. This blog not only tells the type of loans suitable for bad credit people, but it also informs how you can choose the best bad credit loan deal.
A lender will peruse your credit file before deciding if it is worthwhile lending you money. This three-digit score tells how accountable you had been with your financial obligations in the past. A good credit score indicates that you paid your debt on time in the past and a bad credit score indicates falling behind the payments.
Of course, you will find it harder to get the nod when your credit report is not impressive at all. Bearing the fact that your credit application is not worth entertaining, you are eligible to apply for the following three types of loans:
A guarantor loan is a type of loan you can take out with somebody else acting as a guarantor. The guarantor can be your close friend or family, and they are not co-applicants. It means you will be completely responsible for paying off the debt, but when you make a default, a lender has the right to call on the guarantor to pay back.
These loans have been designed to help to meet emergencies only. If you make a default, the guarantor will also lose credit points as you do. The guarantor will act as a safety net for a lender; hence, you will likely get money at quite more competitive interest rates. Note that a guarantor must be a homeowner and have a good credit score. Here are the pros and cons of a guarantor:
a) You are eligible for these loans regardless of your poor credit history.
b) You can borrow more money than other small loans designed to fund emergencies.
c) You can build your credit score.
d) Interest will still be higher than deals available for good credit borrowers.
e) Missed repayments can ruin your relationship with a guarantor.
If you are a tenant, you may find it hard to get a loan, and if you have a bad credit rating, it will be more difficult. A couple of lenders offer loans for tenants no guarantor at competitive interest rates. These are small loans and have been designed to fund only emergencies.
The only benefit of these loans is that they are exclusively available for tenants, but they work as a standard bad credit loan. It means the interest rates will likely be higher. You should apply for these loans only when you are absolutely sure about your repaying capacity. A default will pull your credit points and make it quite more challenging to borrow in the future.
Sometimes you may need to borrow a large amount of money to meet expenses. For instance, if you need money to buy a car, you will need to apply for a secured loan. Hard money lenders UK can offer you such a big amount of money only when you secure them against an asset.
The security can be your car, property, or any other valuable assets depending on the purpose of using that money. Collateral mitigates the risk involved in lending money so you can get money at affordable interest rates. Here are the benefits and drawbacks of secured loans:
a) Despite a bad or limited credit history you can get a large amount of money at a lower interest rate.
b) The repayment term will be longer so it is manageable to pay down the debt over time without worrying about defaults.
c) Since you will pay down the debt over time, it helps boost your credit points.
d) In case of defaults, you will likely lose your collateral.
e) You will lose your credit points if you miss the payment.
Personal loans are unsecured loans that are medium-term loans. It means the repayment term of these loans lasts for up to five years. These loans do not require security, and yet you can borrow more money than a small loan.
The best part of these loans is you do not need to secure them with a valuable asset. In other words, you can describe these loans as loans for bad credit with no guarantor and no fees. The following are the benefits and drawbacks of personal loans:
a) Unlike secured loans, you can get money quickly without going through a lot of formalities.
b) You can choose the length of the repayment term.
c) You can build your credit score.
d) Interest rates will likely be higher due to bad credit ratings.
e) It is not always feasible to get approval for these loans when your credit score is less-than-perfect.
f) If you fail to pay back, you will have to bear negative repercussions.
Tips for choosing the best bad credit loan deal
Bad credit loans are generally expensive, even if you put in collateral. Since the interest rates vary by lenders, consider the following tips to choose the best deal:
• Check for the lowest possible rates
The APR charged by a lender does not just involve the interest rates but monthly fees and processing fees as well. Do research to get an idea of interest rates and loan fees before filling up the application form.
• No prepayment fees
It is obvious that a lender would charge late payment or default fees, but some lenders also charge early repayment fees because they lose interest. It is the main source of their profits, and early repayment fees stop them from making it.
To recover the loss, they charge fees when you pay down the instalment before the due date. However, not all lenders do it. Some accept early payments without charging fees. Try to inquire lenders about it at the time of research.
• Customer reviews about their products
Reviews will help you know whether they fulfil what they promise or they just try to make false claims to attract users. The website may have more positive reviews than negative ones, but you should look at Google reviews or what people say on social media about a particular lender.
• The length of the repayment term
Some of the loans allow you to choose shorter or longer repayment terms. The former lets you settle the loan earlier than the latter as the size of monthly payments will be bigger, but you may tend to choose the latter to take advantage of the smaller size of monthly payments. This will result in paying more money as interest.
Depending on your needs, you can take out various types of loans like guarantor loans, tenant loans, secured loans and unsecured loans. However, you will have to make an effort to choose the best deal, so you do not rue the day.