Loan and Credit options For Borrowers With Bad Credit
Sometimes, there comes a time when taking out a loan becomes a complete necessity. Whether it means covering tuition fees in school, purchasing a new oven for your pizza business, or paying off the mortgage, having extra funding is what many of us in the UK rely on from time to time.
But what if you have bad credit? Would lenders still cater your request for a loan? The straight answer is yes and there are even lenders with loan products that are specially designed for people who have less than appealing credit scores.
Your Credit Report
Often, lenders will look at your credit report to determine whether or not you are qualified to use their financial products. This report is made by UK’s three credit agencies which include, Experian, Equifax, and Callcredit, and will include an array of personal information such as:
- Your complete name, the location of residence, and birth date
- Your maiden name if you are married
- All of your former addresses
- The people that are financially connected to you such as your spouse and business partners
- Your voter registration information
Your credit report will also cover all present debts that are associated with your name including:
- Unsecured loans, home collection loans, and various types of short-term loans like payday loans
- Bank overdrafts
- Employment and company details
- Credit products that you have used like credit cards
- Utility bills like water and electricity
- Secured types of credit that you have used like home loans and auto loans
Aside from the basic information mentioned above, your credit report will also reveal some details provided by the Insolvency Service and Registry Trust, which tells if a person has undergone debt issues that include:
In England, Ireland, and Wales:
- If you have been bankrupt
- If you have undergone Debt Relief Order or DRO
- If you have been subject to Administration order
- If you have been issued an Individual Voluntary Arrangement or IVA
- If you have been subject to a Trust deed
- If you have been bankrupt
Also, in every country in the UK, all kinds of bankruptcy limit orders or commitments and CCJs will be included.
All the information highlighted above are the primary elements in determining your personal credit score. If your credit score is positive, then it would be easier for you to get approved for almost any kind of loan available in the UK. If your credit score is poor, however, then you may find it quite a challenge to apply for a loan and get approved. It can even affect your chances of acquiring insurance and landing certain jobs.
Now if you have bad credit, it’s certainly not easy to take out a loan from just about any bank and traditional financing institution there is. But the reality is, lenders will still need borrowers or else their business model will fail. And given how competitive the loan industry is in the UK today, there are plenty of lenders who are looking to strike a deal with different kinds of borrowers even those with bad credit. They have even designed special loan products tailored to people with poor or non-existent credit histories in the form of bad credit loans.
You can consider credit cards as a viable option
The good news is, there is an assortment of loan products that can cater any kind of bad credit borrower for any kind of purpose. But are credit cards one of them?
If you have bad credit or a credit history that turns away lenders, taking out a credit card is perhaps the last thing you have in mind. This is because the financial products are unsecured forms of revolving credit which means that it would be hard to secure them if your credit score is quite low.
The beauty of credit cards, however, is that you can use them for any purpose you see fit without sacrificing any kind of asset as collateral to obtain them as they are unsecured. Simply purchase the product and you can use it right away to cover any kind of expense. If you fail to pay off your credit card debt, the company won’t be able to take hold one of your assets to recover their loss.
It’s important to note, however, that it’s still quite possible to secure a credit card even if you have bad credit. There are also credit card products that are specifically designed for borrowers with unappealing credit scores.
Credit cards for people with Bad Credit
For a person with poor or bad credit scores, securing a credit card is possible if he or she is willing to cover these two conditions:
- Having a credit limit that is minimal or far from the maximum that is allowed.
- Taking on an interest rate that is more expensive than what is normally placed in borrowers.
While it may appear like a disadvantage in your part to agree on a credit card deal that has a very low credit limit for high-interest rates, it may be the only possible way for you to secure the extra funding that you are looking for. What’s whore, if you manage to use the credit card responsibly and pay off your bill on time, it will add some positive points to your credit score and paint a positive picture in your credit history? This will, in turn, help you access even bigger credit limits for better interest rates.
There are also a number of great advantages that come with using credit cards. For one, it relieves you from the burden and danger of having to bring huge amounts of cash. Credit cards can also be used to book flight and travel destinations, make purchases in both online and offline shops, and can be an excellent insurance in case some problems arise in the product that you purchased.
It’s important to note, however, that your chances of getting approved for a credit card for bad credit will vary from company to company as credit card companies normally follow different rules and policies. Also, it would be wise not to take out multiple credit cards at once as they are not only hard to manage but could also paint a bad image in your credit profile especially if they don’t match your income level. The best move would be to start with just a single credit card and go from there.
Other Bad Credit Loan Options
While credit cards certainly offer certain advantages, they also have their own set of disadvantages and may not be ideal for many borrowers. If you think that a credit card is not the suitable financial product for you, there are other kinds of bad credit loans that you can consider.
The financial products are short-term, unsecured forms of loans, normally for a month or shorter, which requires the borrower to pay back the money that he or she owes to the lender plus interest rate in the next payday.
The great thing about payday loans is that they are fast and extremely accessible. The qualifications are also few and basic and often, the lender won’t check your credit history which means getting approved with a bad credit is highly possible.
To secure a payday loan, however, you will need to satisfy a few important things and they include:
- You are employed and are enjoying a stable source of income
- You have an active bank account in the UK
- Your present income is enough to cover the loan’s payment
Bear in mind, however, that payday loans often have high-interest rates and this is something that you should consider heavily before you take out the loan.
You can secure a comfortable loan for large amounts and favorable rates even if you have bad credit through a guarantor loan. This is because the financial product is approved based not on your credit score but if you have someone who can act as a guarantor of your loan agreement. A guarantor is a person who will co-sign your loan deal and agree to cover the loan’s repayments if you can’t maintain them.
The great thing about the loan is that it has a more affordable interest rate than other forms of bad credit loans like payday loans. The amount you can borrow is also bigger and the payment term longer. Normally, you can pay back your guarantor loan in a year or up to 5 years depending on your needs and present circumstances. With a stretched payment term and cheaper interest rate, this makes it easier for you to keep up with your repayments.
What’s more, you can use the loan on just about anything and everything you want from purchasing a new car, covering an important home improvement project, and even taking a long vacation abroad.
- ) Doorstep loans
Doorstep loans are unsecured forms of short-term loans that are designed with the borrower’s convenience in mind. Because, as its name suggests, the loans can be arranged right at the very comfort and convenience of your own home. Normally, a representative of your lender will be the one to deliver the money at your doorstep and return every week for your loan’s repayments.
The beauty about doorstep loans is that you, as a borrower, have the chance to personally relay any and all concerns and questions that you have in mind to your lender’s representative, in a face to face basis. This means that you can arrange a payment term that is perfectly tailored to your needs and present circumstances make it easy to manage your debt.
In addition, the loans normally do not involve any secret charges and surprises that may frustrate you once you pay off your debt. And if the loan’s repayments become too much of a strain to your current financial situation, you can simply ask your lender’s representative to draw out a new payment term that will be more comfortable to your budget.
4.) Logbook Loans
Logbook loans are secured loans that are tied to your car, motorbike, or any other kind of vehicle with value as collateral. This means that the lender has the legal right to repossess your vehicle in the event that you default from your loan. The good thing about the financial product, however, is that you can still drive your vehicle if you manage to maintain your loan’s repayments.
The loans can be accessed with ease both from brick and mortar lenders and those that operate online as well. The amount of credit that you can take out will depend on the value of your vehicle that you offer as collateral. Mostly, lenders will allow you to borrow as much as 50% of your vehicle’s worth.
When you find it hard to get approved of the kind of funding that you are looking for because of your bad credit, one of the best things that you can do is to personally talk to the lender and persuade them that you are a worthy borrower.
Once you manage to secure a personal meeting with a lender, make sure that you are adequately prepared and this includes having the right kinds of paperwork that will show them you are worth the risk.
The most important thing to remember is that lenders have a tendency to prefer financially stable borrowers. By revealing to lenders that you have been a resident of the same place and have been employed in the same company for an extensive period of time, it would be easier for you to convince your lenders that you are the right borrower for their loan products.
Some of the important documents that you need to present in your face to face meeting with your lender so you can prove your case as a borrower includes:
- Tax returns for 2 years or longer if possible
- Employment information such as your position, your salary, and pay slips
- Any asset that you may have including your property, car, and expensive jewelry
- Bank statements for the past two years at the very least
While it’s certainly not necessary to bring these things with you when you are applying for a loan, if you have bad credit, such documents mentioned above will become a big help in convincing your lender about your creditworthiness.