What is a bad credit loan?
It is a loan that is designed specifically for someone that has an adverse credit rating perhaps through defaulting on a credit card as a result of seeing his or her income reduce due to being made redundant. Banks and building societies are often reluctant to provide loans for people with bad credit in view of the additional perceived risk. You will repay the loan in the same way as any other over an agreed period of time but you will find that providers of such bad credit loans tend to charge a higher rate of interest than banks in view of the potential extra risk involved. Of course, this means that your monthly repayments and the total amount that you end up paying back are going to be more.
Who can apply for a loan?
Applications may be considered from the likes of people with a bad credit history that are employed, self-employed, unemployed or retired, are at least 18 years of age and resident in the UK.
What types of loans are there available?
There are several different sorts of loans for poor credit rated people offered by a variety of lenders. For instance, there are short term loans, long term loans, personal loans, secured loans, unsecured loans and guarantor loans, so finding the most suitable best loans can be a challenge.
Short term loans – people take these out if they only want to borrow the money for a short period of time perhaps for a few months to a year or two. They must be in a position to afford the higher monthly repayments than if they had borrowed the money over say 5 years but would probably benefit by paying back less interest with a short-term loan.
Long term loans – these tend to be over say 2 to 5 years or possibly even longer. By borrowing the money over a longer period, you should pay lower monthly repayments but will usually pay more back in interest in view of the longer term.
Personal loans – this type of loan is made available to individuals either in their sole or joint names to be used for their personal requirements such as to buy a car or pay for a holiday.
Secured loans – the lender will require some form of security such as a second mortgage over your home so that, in the event of you defaulting on the loan, they could commence repossession proceedings to clear the borrowing. The interest rate is usually lower than an unsecured loan.
Unsecured loans – as the name indicates, these loans are provided without the lender requiring any form of security making it more difficult for the lender to recover the amount outstanding on the loan should you default on it. The interest rate is usually higher than for a secured loan in view of the additional risk to the lender.
Unsecured loans are offered by ‘Avant Credit‘ at highly competitive rates.
Guarantor loans – if you are struggling to arrange a loan with very bad credit, a family member or close friend who has a good credit rating may be prepared to act as your guarantor for a loan that you take out with a lender. If you are unable to keep up the repayments, your guarantor may be asked to make them on your behalf.
One such company offering this type of loan is George Banco with their Guarantor Loan, along with the ‘TrustTwo Guarantor loan‘, which is also well worth a look.
Please visit our comparison page, where you can find further information to help you decide which guarantor loan would best suit your needs.
How do I apply for a loan?
This will vary between lenders with the range of options including completing a simple application form online, over the phone, by post or through a broker. The lender will usually carry out a credit check on you and may ask for other documentation such as evidence of income and proof of identity/address verification if unable to verify these later two things electronically.
How much can I borrow?
This will vary between lenders with some considering loan applications from one hundred pounds to many thousands of pounds. This information is clearly published by each of the the lenders.
What things should I consider when comparing loans?
There are a number of things such as the interest rate (APR – Annual Percentage Rate), how much will they lend, over what period of time can you borrow the money for, is there an arrangement fee, can you pay off the loan before the end of the term and, if so, is there any penalty for doing so and is any form of security required.
How long will it take to get approved for a loan?
This will vary between lenders but sometimes an instant decision can be made when you apply online or over the phone. If not, hopefully you will get a quick decision within a day or two. Some lenders may request further information from you such as evidence of your income that may extend the decision-making timescale.
What if I have CCJs, or have been declared bankrupt?
A number of lenders will consider applications from people that have CCJs registered against them and those that are discharged bankrupts. Undischarged bankrupts are likely to find it more difficult to get loans with bad credit in the UK.
What are the dangers of bad credit loans?
The interest rate is usually an awful lot higher with this type of loan.
Do I need a guarantor to take out a loan in th UK?
With many poor credit loans it is not normally a requirement that a guarantor be provided. However, there are some companies that specifically provide a loan supported by a guarantee.
What if I’m unemployed?
Certain lenders may consider loan applications from people that are unemployed and on benefits.
How often will I have to make repayments?
Repayments are normally made on a monthly basis although, on occasions, it may be possible to pay weekly.
What if I need to get a personal loan fast?
One of the quickest ways is to apply online and if approved with some lenders it may be possible to have the monies paid into your bank account on the same day.
What are the advantages and disadvantages?
The advantage of a bad credit loan is that it is available to people that have a poor credit history that might not otherwise have been able to obtain the finance from the likes of a high street bank. The disadvantage is that the interest rate is likely to be a lot higher.
What things do people normally take out loans for?
Some of the things that people arrange a loan for are to buy a car, pay for a holiday, buy Christmas presents, carry out home improvements, pay for a wedding and debt consolidation. It is also worth remembering that another option is to apply for a credit card with bad credit, and using that to pay instead. As such it is prudent to compare the pros and cons of both before making your choice.
There are several providers of loans for bad credit rated people, so it is worth shopping around to try to find the best deal to meet your requirements, taking into account such things as the APR on the loan. It is important that you are comfortable you can afford to meet the loan repayments and, in doing so, you may help improve your credit rating over a period of time. We provide access to a number of providers of bad credit loans through this website.