Bad Credit Loans

A guide to getting credit with poor financial history

It would seem today that with the number of payday lenders, and guarantor loan companies, coupled with the "credit crunch" a few years back, and the number of people who in the past have experienced a financial struggle, it has created a "perfect storm" for bad credit loans, or loans for people who may not qualify through traditional banking or mainstream lending.

Rejected
Money

Bad credit loans are loans for people who may have had poor credit in the past, no credit history to show, or do not meet the traditional lending criteria. However, they still require a loan.

Why
did we write this guide

Bad credit guide

Simply to help people.

To give someone a "one-stop" shop to learn about credit, loans for people with slow, or no credit, and to ensure the guide was extensive and complete as possible. To aid those looking for information on loans, and also how to improve their credit and credit score.

The world of banking and lending has changed over the years. And unfortunately for many people, so did the economy. Many people saw their jobs be phased out and faced redundancy. Others found themselves unemployed as the companies they worked for went bust.

Losing one's job has a huge trickle down effect as if you have any debts, you could struggle to repay them. Once in arrears with an account, it can be difficult to find your way out of the arrears, and get back on-track. In addition, late payments and being in arrears is reported on your credit file, which reduces your credit rating and credit score. These late or missed payments must be reported on your credit history, as your credit file is to be an accurate picture of how the accounts were paid. Once reported, it can take time to increase your credit rating and credit score.

Many people will seek out professional advice when struggling with debts and may enter in some form of structured repayment scheme, such as a Debt Management Plan or IVA/Individual Voluntary Arrangement.

While these options allow someone to repay their debts and get out of debt, they still have a detrimental effect on their credit history.

Then later on, if they are looking for a loan, or want to rebuild their credit, it can be difficult to get approved.

How to use this guide

For the most part, reading the entire guide is the best way to understanding and getting insight into bad credit loans, and your credit, and the options available to you.

The guide is broken down into chapters to make it easier to read. Taking a chapter at a time, in succession, will help in getting a better understanding.

Each chapter is meant to be a stepping stone onto the next chapter, so that hopefully when you reach the end, you've not only had any questions you may have had answered, but you also know how to apply what you've read to your individual circumstance.

Bad Credit Guide

Guide chapters

.0

Overview &
Introduction

.1

The fundamentals
of a Bad Credit Loan

.2

Providers of Bad Credit Loans in the UK

.3

How to get approved
for a Bad Credit Loan

.4

Understanding
credit scoring

.5

How to better manage
your finances

.6

The future of Bad Credit Loans

.1

The fundamentals of a Bad Credit Loan

In discussing bad credit loans, there are a few basics that need to be mentioned and covered, such as what is a bad credit loan. There also is the difference between a bad credit loan, and other loans. And when should one take out a bad credit loan.

Once we understand these fundamental points, we can look at where to get a bad credit loan, your credit and credit scoring, and other personal financial issues.

.a

What is a Bad Credit Loan


Bad credit loans are loans of various types, it may be a personal loan, a car loan, even a credit card or mortgage, these loans are specifically tailored for someone who may have been rejected for loans in the past, and may have poor or weak credit. They can also be for someone who has no credit, as a lender does not have any basis to know how you may pay back your debts.

With weak or poor credit, it is difficult to borrow from a "mainstream" lender.

Someone may have a CCJ against them, or had previous arrears for an account. This can cause their credit rating and credit score to be low.

Credit Score

This is why some lenders offer bad credit loans. Loans that may carry a higher than usual interest rate as the borrower is more of a risk. The higher interest rate is to help offset any losses the lender may experience by granting a risky loan.

.b

Difference between
good credit & bad credit


The differences between a bad credit loan and a mainstream lender or good credit loan, simply stated are the terms and the interest rate.

As previously stated, bad credit loans carry a higher interest rate than good credit loans due to the risk to the lender.

Other differences may be in the terms of the loan. A good credit loan may carry a longer repayment period, maybe 60 months or longer.

Credit Score Rating

A bad credit loan may carry a shorter term or repayment period, maybe a maximum of 36 or 48 months. Again, this is for the lender to reduce their risk and get paid back quicker.

A difference some guarantor loan lenders have is they request a guarantor in order to grant the loan.

A guarantor is a friend or family member that states if the borrower does not make the agreed payments, they will be responsible for them. These type of loans are less risky to the lender.

.c

Advantages and disadvantages


The main advantage of these forms of loans is that you can get a loan. You need to borrow money, have weak, poor, or no credit, and can actually get approved for the loan you require. Otherwise, where would you turn?

Some may turn to loan sharks. Not enough can be said about thinking twice, three times and more, before turning to this form of lending. I say/write lending loosely, because it is more extortion then it is lending. With loan sharks you can find yourself in a spiral of debt which is extremely difficult to get out of.

So bad credit loans are a blessing compared to the alternative.

Positives and Negatives

Another advantage of a bad credit loan, is that if someone has poor credit, by repaying the loan they can be re-establishing themselves and re-build their credit file.

As previously mentioned ad nauseam, a disadvantage is the higher interest rates that are usually charged. Even with a higher interest rate, affordability is the issue here. If you feel you can afford the loan, and the lender feels the same, a higher rate, while protecting the lender, is getting you the loan you may need.

One other disadvantage is you may not receive the loan amount or credit limit you were requesting. A lender may cap the amount of the loan or credit limit they will grant. This is again to limit their risk or exposure on the loan.

.d

Why someone may need
a Bad Credit Loan


One of the first reasons someone may require a bad credit loan is the fact they have slow, weak, poor, or no credit history, yet they need a loan for a specific purpose.

In some instances having no credit can make getting a loan as difficult as having a poor credit history. The lender has nothing to base their decision on in granting the loan. This is where using a guarantor loan can help in establishing credit. As long as someone guarantees the loan for you, meaning they will make the payments if you don't, the lender grants the loan and you begin building a credit history.

Credit Score Rating

Bad credit loans can also aid in building a credit history.

Another reason why someone may need a bad credit loan is that they require a loan, they need to borrow money for something, and would be turned down by the usual banks or mainstream lenders.

Many of us require a car to get to and from work, or for other reasons. We may be able to afford a monthly payment for the car, but need to finance the car as we don't have the full selling price.

Chart

Enter a bad credit loan to aid in this sale.
Since many car loans are considered secured loans, which means the car becomes collateral for the loan, even with poor credit it may be possible to be approved for a loan. If the loan is not paid, the lender can repossess the car.

Someone may need a loan for house repairs, or to fund moving house, and have weak or poor past credit. A bad credit loan can help here as well.

If you have poor or no credit, using a bad credit loan not only solves the problem of where to get a loan, it can also aid in re-building your credit.

.e

When not to take out
a Bad Credit Loan


The interest rate is too high:
This can be more than just the interest rate being extremely high, but also the terms of the loan. You can expect to pay a higher than usual interest rate for a bad credit loan, but not too high.

Also, if the terms, meaning how long the repayments are seem excessive, or too short, you may want to not take the loan out. A loan may be considered usury if the interest rate is too high.

For non-essential reasons:
Taking out a loan for non-essential purposes, or using a loan to finance a holiday, is not a good reason to take out a loan, even if you are approved.

There are some things you should not finance. You should be saving instead of borrowing.

Unscrupulous lender:
There are private lenders and others, that are unscrupulous in their lending and also in their collection practices. And we are not always discussing loan sharks.

You feel forced:
Never take out a loan if you feel pressured or forced.

I can always say I need to rethink matters. If you feel pressured, just walk away.

You know you cannot afford to repay it:
Just because the lender says you can have the loan, does not always mean you can afford the loan. The lender may look at your finances and details, but they may miss something, or it may be you failed to disclose an expense or monthly bill; all of which could affect your affordability.

You know as to if you can afford the new monthly expense. Prior to applying for a loan, do some research as to what the monthly payments may be. There are online calculators that can help you with this. If possible, try to live a month or two and make the imaginary monthly payment and see how you get on.

.f

Explaining
What is the APR


When you take out a loan, on the contract it should state the terms of the loan. The amount borrowed, the term (how long) the repayments are, the APR or annual percentage rate, (or interest), and the total amount that will be repaid, the principal amount of the loan, plus the amount of interest you will be paying.

It may be shown like this:

Loan Amount

£5000

Months to Pay

36

Monthly payment

£148.53

APR

4.5%

Interest Paid

£347.08

Amount Repaid

£5,347.08

The APR is the annual percentage rate. It is the interest rate charged for the loan over an annual or 12 month period.

The APR is what the loan will cost over a one (1) year period.

In some instances, such as with payday loans, the APR seems excessively high, like 1500% or even 2000%. This is due to the fact that payday loans are a short-term loan, usually for 30 days. When you extend the interest rate over a 12 month period, it causes it to look very high.

Percentage

Typical APR
This is the APR that most borrowers will receive. It is called typical as by law two-thirds of all borrowers must receive this interest rate.

Representative APR
The representative APR is the APR used in many instances for advertising, and at least 51% of those that apply for a loan will receive this interest rate.

The representative APR must also include any add-ons or fees to the loan as well.

It is important to know and understand about APR and interest rates, especially in the context of a bad credit loan as these loans can carry a higher than standard interest rate.