Loans for bad credit may seem like an unlikely possibility, but you will be happy to know that is not the case. Even if you struggle with a difficult financial history and a poor credit rating, there are avenues you can pursue in order to get financing. While these borrowing options will not be suitable for everyone, they can certainly help some people find the right deal.
Table of Contents
- What Is A Bad Credit Loan?
- How To Get A Loan With Bad Credit
- What Are The Advantages Of Bad Credit Loans?
- What Are The Disadvantages?
- How Can I Improve My Credit Rating?
What Is A Bad Credit Loan?
Bad credit loans are unsecured loans that are available to people who do not have a good credit rating. This means that this financing option is not secured by collateral, so it does not require you to have a personal asset in order to be granted the loan. It also opens up possibilities for individuals who are not able to borrow money from traditional financial institutions, such as banks, because of their poor financial history.
What Adverse Credit Loans Can I Get?
Adverse credit financing is now available in multiple forms, depending on the borrower's needs and circumstances, but also on the lending company. In order to choose the right loan option for you, you need to review all the offers and decide which one is the most suitable for your situation. Here are some of the most common loan options with bad credit:
Payday loans for bad credit traditionally allow you to borrow money for a month, or until the next payday, as the name suggests. The payment would have been made in full, including interest. However, this type of financing has evolved to include longer repayment terms, so you can pay in smaller instalments over several months, thus making it more affordable and convenient.
Same day loans
The main draw with same day loans is the fact that they are extremely quick, making them perfect for financial emergencies. They offer an instant decision when applying, so you know on the spot whether or not you will be granted the loan so that you can plan accordingly. You can get the money on the same day you apply if the application is processed quickly enough.
One of the most convenient borrowing options on the market, doorstep loans represent a type of financing that literally comes to your doorstep. Everything from the application to getting the money and then repaying your regular instalments is done with the help of an agent that comes to your home. This is extremely convenient especially for individuals with disabilities, single parents, or just people who lead very busy lives.
How To Get A Loan With Bad Credit
I'm sure you're wondering how to get an unsecured loan with bad credit. It's not at all difficult; you just need to organise yourself a bit and follow the steps outlined here.
How Can I Apply For A Loan with Poor Credit?
Applying for bad credit loans is easy – you can apply either in person, over the phone, or online, depending on the lending company. However, more and more financing companies are relying on online applications, as they are quick, easy, and they offer the possibility of instant decisions.
All you have to do is fill out a form with all of your details and the lender will be able to tell you on the spot whether or not you can borrow the amount you need or not.
Where Can I Get A Bad Credit Loan Online?
Nowadays, there are numerous lending companies who will offer you a loan, and there are plenty of brokers available willing to do the hard work for you. You just need to apply as you would normally, and the broker will search in their extensive lender database to find the ideal offer for you and your specific needs. This is the easiest way to get a good deal for personal loans with bad credit.
What Do I Need To Get A Bad Credit Loan?
Every lender will have a different set of requirements for borrowers, but you can expect a few criteria that are common among most lenders or brokers:
- Be a United Kingdom resident
- Be over 18 years old
- Have a monthly income of over £750 after tax
- Have a bank account and a debit card
- Have your income deposited into your bank account
How Much Can I Get With a Loan Like This?
The amount you can borrow with a low credit rating depends on the company, as well as your own financial situation. Generally speaking, you can expect to get between £300 and £5000, with a repayment term that can span from 1 month to 24 months. This depends on whether you choose to repay the amount in full or if you want to repay it in instalments, as well as how much you can afford to pay each month.
Can I Get A Loan With Bad Credit And No Job?
When going for a loan like this, it is already assumed that you have a less-than-perfect credit rating, but what about if you don't have a job? This particular situation might be tricky, because most places will expect you to have an income.
However, you may be able to find a company that will lend you money even if you are not traditionally employed, like if you are self-employed, or on disability.
Can I Get A Bad Credit Loan With No Guarantor?
A lot of unsecured loans will require you to have a guarantor (i.e. someone who can co-sign the loan with you and assume financial responsibility for repayment, should you become unable to pay).
This is especially common with financing options for individuals with a poor credit history. However, it is entirely possible to be able to obtain financing without a guarantor, albeit with a higher interest rate.
What Are The Advantages?
Bad credit loans come with a distinct set of advantages that can attract even the most sceptical borrower:
They offer loans when no one else will
Finding someone who is willing to lend you money when you don't have an unblemished credit report can be quite difficult, and a lot of people in this situation struggle to obtain financing. Loans for bad credit like payday loans, same day loans, or doorstep loans are some of the very few options on the market that may provide the solution you need.
You can repay in instalments
Very few people will be able to afford to repay an entire loan in full in one go, which is why the ability to repay in instalments over a longer period is so important. This feature is invaluable because it increases affordability for a wide range of individuals.
It is much easier to work a repayment instalment into a regular monthly budget than a full repayment. In addition, this also makes it much less likely for the borrower to become reliant on these loans.
You do not need collateral or a guarantor
Since these are unsecured loans, it means they do not require collateral. This is good news because a significant amount of people do not own property or valuable assets that they may put up as collateral.
Or perhaps they are not willing to put their assets at risk, should they become unable to repay. You are also not required to sign with a guarantor who can take responsibility for you. You do not run such a risk with this financing option, as that risk factor is covered by the interest rate.
What Are The Disadvantages?
While this type of loan can do a lot of good, there are also disadvantages associated with it:
The interest rate is quite high
The most obvious drawback of loans like this is the fact that the APR is very high, compared to regular loans. Of course, this is because of the credit rating, as well as the lack of collateral or guarantor.
Factually, the borrower presents a significant amount of risk that the lending company has to protect itself against in some manner. But while understandable, this still represents a large amount of money you are expected to repay on top of your loan.
The amount you can borrow is not massive
Because of the same lack of security, the amount a borrower can get is not very high. A loan between £300 and £5000 will cover some urgent expenses, like a large bill, unpaid debt, or an unexpected car expense or medical expense, but it will not suffice if you want to purchase a house or a car, for example. You would need a secured loan for that, and that requires a valuable asset of some kind.
[blockquote] Tip : If you're struggling to pay off other payday loans, The Money Advice Service suggests that you talk to a debt advisor. [blockquote/]
The companies are not always truthful
Some companies make profit by preying on the financially vulnerable and tricking them into financially draining contracts. More often than not, these practices are illegal, but by the time the borrower finds out, they are already deeper in debt.
That is why it is vitally important to put the lending company through a thorough vetting process, including checking if they are registered with the Financial Conduct Authority (FCA) Register.
How Can I Improve My Credit Rating?
Regardless of whether or not getting loans with poor credit is possible, it is always desirable to improve your score in order to be able to get better deals and be offered more options when it comes to financing. Below is a diagram to illustrate credit scores.
Here are some of the steps you can actively take to start cleaning up your credit history.
Pay off previous debt
Before you plan on going into more debt, work on getting rid of the one you already have. Old debt weighs heavily on your rating, and it drags your chances down. Pay off previous loans before getting another one.
Pay your bills on time
Being constantly late on bills reflects poorly on your score and gives lenders the impression that you are unreliable when it comes to timely payments. Stay on top of your bills.
Pay off your credit card balance
It's easy to just throw some money at the minimum payment and then forget about that credit card bill, but you can't forget – it's embedded in your financial history. Pay off the balance to pull up your rating.
Only keep one credit card
Having multiple credit cards means that there are multiple sources and opportunities to "leak" money and overlook the payment of your balance. Just keep one and close all those other accounts.
Set up direct debits
For all your regular payments, you may consider setting up direct debits. This means you can't forget about them, they get paid on time, and you demonstrate financial responsibility and timeliness.
Did you know? The average UK adult is £30,096 in debt.
All in all, bad credit loans can be an excellent resource for people whose financial history is less than ideal. If you've been thinking about getting one, but don't know where to start, use this guide as a comprehensive resource to learn everything you need to know about this financing option.