Loans that have been designed specifically for individuals with low or no credit scores are known as bad credit loans. Many lenders are hesitant to lend to people who have poor credit scores because there is a higher risk of default. A low credit score is a sign of individuals’ low ability to repay, making it difficult for these individuals to find a lender to offer them a loan.
A bad credit loan can save individuals who have a low or no credit score. These loans are usually secured loans, which means that individuals have to provide security or collateral such as property, gold, financial securities, etc. in order to avail of the loan.
When Should You Use A Bad Credit Loan?
Bad credit loans should only be used when necessary, which may be when you are in any of the situations listed below:
Your loan application has been rejected by many lenders due to your poor credit rating.
Credit card payments have been delayed.
You have no other option than to manage your current debts.
Your financial situation has improved and you can afford to pay off a loan to repair your credit score.
Why Do You Have A Low Credit Score?
- Your credit score may be low for any of the reasons below:
- You wouldn’t have time to pay your bills
- You haven’t made your payments
- Your credit request was unsuccessful
- You have borrowed in the past and failed to pay on time
- You have never taken out a loan before and have no financial records
Which Lenders Offer Bad Credit Loans?
If you have a low credit score, collateral can help you get a good loan deal. Providing collateral reduces the risk associated with lending to you, so you can negotiate very bad credit payday loans direct lenders UK direct lenders to offer you lower interest rates. Such loans which are provided against collateral/guarantee are known as secured loans.
However, if you have no collateral and are looking for unsecured loans, you may be eligible for a loan if your monthly income is on the higher side and you work for a reputable company. In such cases, banks will charge you higher interest rates and there is also a chance that you will get lower loan amounts. For example, if under normal circumstances your loan eligibility is about 80% to 90%, it will be 65% to 70% because of your bad credit score. There is also a chance that you will be offered a shorter repayment period as banks will make sure to get the loan amount as soon as possible.
Are There Any Alternatives To Bad Credit Loans?
Yes, there are limited alternatives that you can consider before deciding on a bad credit loan. These options are:
Talk to your current lender so we can offer you a loan tailored to your circumstances. Your existing lender can help you in this regard rather than going to a new lender for a loan. You can get an overdraft on a current account with a 0% interest rate from a certain amount. Never go over your overdraft limit as the overdraft fee will be very expensive.
Credit unions, like very bad credit payday loans direct lenders UK that are community-run, can offer a real alternative to banks for those going through financial difficulties. To get a loan, you must be a member of a credit union. These organizations are supportive and their main purpose is to serve their members.
Credit cards are another option available to those with bad credit history. There are special cards for people with bad credit. Although they may have lower credit limits or higher interest rates. Also, remember that a failed application will further damage your credit card. There are payday loans. However, it is advisable not to take this loan. Use your own savings as long as you can. It is better to use your savings than to pay the high interest that is charged on loans.
Whatever the problems, stay away from loan sharks. Talk to your existing lender and work out an agreement that will prevent you from defaulting on your payments and save you from bad credit. The loan provider will always help you and advise you on how to proceed in your current financial situation.