This may mean that as a borrower you haven't made repayments on time or you have made a failed application for credit previously.
Also, there's an issue for someone who's never borrowed previously so they might struggle to find a lender offering a loan because they have no way of measuring how you might deal with regular repayments.
This means a lender may view you as a credit risk but there are others out there who will take you on as a borrower and the market for this is competitive. A quick internet search will highlight this point effectively!
Other avenues, such as borrowing from friends and family,may not be available for various reasons so finding a lender to help you is important.
Is a small loan the right choice?
For many people, wondering whether a small loan is the right choice then you need to decide between small loans vs credit cards – and which will be best when it comes to meeting your short-term financial need.
For those with bad credit history, unfortunately, your options will be limited.
This is understandable and while you may consider yourself to be a sound financial risk for a small loan – the lender may look at your credit history and decide otherwise on their criteria. Some lenders will have tight rules so even if you miss your gas bill payments once or twice will count against you.
It’s not all bad news; if a bad credit loan is managed responsibly then you'll be making a big step to repair what might be a poor credit score. By repairing your credit report you stand a better chance of obtaining credit even if some lenders may view you as a bad credit risk.
One of the attractions for using a loan when you have a poor credit history rather than a credit card is the opportunity to manage your current debts more effectively.
This means you could consolidate your debts which means combine several debts into one with a new loan. Having one loan and one repayment will be of huge help to someone struggling to repay several loans or credit cards.
So, how do you check eligibility of whether you are creditworthy as among the reasons toapply for a small loan?
Firstly, there are websites available that will carry out a free credit check so you can look at your credit file and correct any errors and gauge how poorly a potential lender may view you as a customer.
The other issue here is that you will appreciate why you are viewed as a bad credit risk because you will see clearly the ‘bad marks’ for not paying a debt on time.
In addition to checking this eligibility, you will also need to check that the rates for personal loans are competitive and go for the cheapest option.
As with those with a good credit history, better loan deals tend to be for those who have the best credit scores.
If you are a homeowner it might be possible to find a lender offering better rates and you may also need a loan guarantor before receiving any money – this is someone who promises to pay the debt should you be unable to.
Is it better to save?
In the search for a bad credit loan, you may be questioning whether is it better to save?
While we all should be saving to help building a cash nest egg, this isn't always possible because we may not, for instance, be earning enough or our outgoings are simply greater than our earnings.
It also depends on what you want to save for and this is a good discipline to get into so you don't have to borrow money for major purchases.
However, not all of us can do this and we will, at some point or another, need to access credit from a lender.
There’s no doubt that for many, the ability to save is a bonus since they won’t be paying interest on the money they borrow and there is an issue for personal finance.
As we have mentioned earlier, by not borrowing you won’t have a ‘credit footprint’ so when you come to borrow – and we all will whether it’s for a mortgage or car finance – the lender will not have any way of establishing your creditworthiness.
Can small loans hurt your credit rating?
This then leads us onto the issue that regardless of your credit history, you may be wondering whether small loans can hurt your credit rating.
The answer is ‘no’ but you will need to make your repayments promptly since missed repayments will damage your credit rating and make it more difficult to find credit in future.
There may be an issue for someone who regularly takes out small loans, particularly over a short period of time, as this borrowing will be shown in your credit report and a lender may question why you need to make so many small loan applications.
However, by managing a small loan effectively you will improve your credit rating and show potential borrowers that you can manage debt to boost your chances of finding credit loans in future.
It also needs to be appreciated that when it comes to getting a loan and you do have a bad credit history then the amount you want –the smaller the better – and the length of time you need it for – the shorter the better – means more lenders will potentially look at your application favourably.
Finally, if you want to know how to get a small loan with bad credit then you need to shop around to find a quality lender offering a decent rate of interest and avoid expensive loans from those lenders and doorstep lenders you may not trust.