What Are Poor Credit Loans About And How Can They Help Me?

Although references vary, a poor credit rating means that your credit score falls just under what is perceived as good. The score will fall somewhere in the middle of a good and bad credit score. A credit score of 500 to 579 is considered poor while a bad credit score is 300 to 499. Some people with poor credit scores find it difficult to acquire a loan since they are considered risky borrowers by most lenders.

But searching for lenders who can offer you a loan despite your poor credit rating is not that bad. You still have a lot of options when it comes to personal loans, and these loans come from reputable lenders. It is possible that you previously had late credit card payments or defaulted a loan, but this does not automatically mean you will be forever banned from getting a loan.

You still have a lot of options when it comes to personal loans, and these loans come from reputable lenders. You may have defaulted on a loan or missed credit card payments in the past, but it doesn’t mean you are forever banned to get a loan.

What’s even better about these loan providers is that most will not perform a hard credit check when you try to apply for a loan or inquire about their loan rates. Your best option is to search for lenders that mainly conducts soft credit inquiries and make a rate comparison. A soft credit inquiry allows one to see the loan details without the need to apply formally. The good thing about this is that it won’t affect your credit score, and there’s no worry about further damaging your credit rating.

Once you are offered a poor credit loan, note that these loan products have higher fees, interest rates, and charges compare to loans that are offered to borrowers with better credit scores. Lenders may not grant you a loan because they fear you might fall behind on repayments or maybe not pay at all. The higher interest rates and fees of poor credit loans compensate the risk of the lender in letting you borrow funds.

What options are there for borrowers with poor credit?

Unsecured Personal Loan

A borrower can opt for an unsecured personal loan if his or her credit score falls below what is considered good or passing. He or she can acquire the necessary funds without the need to provide collaterals or assets to secure the borrowing. Despite having exorbitant interest rates, these poor credit loan products are usually the best viable option for borrowers with less-than-stellar credit scores.

Secured Personal Loan

If you want to get a loan with a lower interest rate, another suitable option is an unsecured personal loan. You will be required to secure your loan with an asset like property, which in return lets you enjoy a lower total loan cost compared to an unsecured loan.

Logbook Loan

Borrowers with poor credit and have no property to use as collateral can apply for a logbook loan instead. A logbook loan is typically secured against a vehicle, may it be a car, SUV, or motorcycle.

You should remember, however, that there are consequences to taking out a secured loan in case you default on your loan repayments.

Payday Loan

If you are seeking a short-term loan for a small amount, payday loans are a quick way to get the cash that you need even if you have poor credit. Sometimes you only need around £200 to £300 to pay for sudden expenses that cannot wait for your upcoming paycheck, thus payday loans can come in handy. You can also borrow larger amounts up to £1,000 and pay it back after thirty days or more. Payday loans are useful for individuals in dire need of cash with poor credit scores.

Doorstep Loan

A doorstep loan, known also as home credit, is a viable option for borrowers with poor credit history. An individual can get up to £2,500 but will be subject to the borrower’s affordability as well as the requirements of the lender. Consumers can take advantage of this loan product for unexpected expenses like hospital bills and immediate car repair.

P2P Loan

P2P loans or peer-to-peer loans can be a great choice if you want to get a loan but your credit score is poor. P2P lenders let you borrow money from investors rather than a bank or building society. It works like a bank loan, except that the interest rate for the investors is usually higher. Interest rates are typically higher than what bank loans offer, but it a useful option for borrowers with flawed credit. Peer-to-peer lending also has better deals compared to traditional loan products.

Credit Union

If you are strapped for cash, another good option is a credit union loan which is a loan product offered by co-operatives in the community. Credit unions offer great financial products for borrowers with not-so-good credit ratings.

Getting a loan from credit unions are relatively easier than acquiring a bank loan since credit unions’ standards and requirements are usually more lenient. Typically non-profit entities, credit unions can provide more affordable loan products and services compared to profit-driven financial institutions. The only catch is that one has to be a credit union member first in order to be qualified for a loan.

Instant Loan Online

Another viable option for poor credit borrowers is instant loans online. It provides quick and easy funding due to its same-day processing feature. Most individuals who choose instant loans online can benefit from these loan products when traditional financing won’t work. Instant loans online offer quick financial relief to people with poor credit ratings.

Guarantor Loan

If your credit rating is poor, you can seek a guarantor to guarantee your loan for you, thus helping you get the funds that you need. One of the requirements of guarantor loans is having another person agree to assume the loan balance in case the borrower cannot – and this person should have a regular source of income and good credit to be considered. A borrower can get a better loan deal if he or she has a guarantor.

Guarantor loans are quite popular because one can borrow around £100 to £15,000 as long as a family member, relative or trusted friend guarantees the loan repayments. The terms of guarantor loans are more flexible and cheaper compared to other types of borrowings for poor credit.

Useful Tips

Obtaining a loan despite having poor credit can also become an opportunity to repair your flawed credit score. As long as you repay your poor credit loan on time, your credit score will eventually improve and you will be seen as a reliable borrower.

All types of loans will have certain risks, therefore you must ensure that you can afford the loan repayments before planning to take out a loan. If you fail to pay your loan obligations on time, you can further damage your credit score and end up with more financial troubles.

If you decide to apply for a poor credit loan, you must carefully weigh all options so that you can get the best loan deal and be able to manage all scheduled loan repayments while keeping your budget for other expenses intact.

For you to get a good deal on a loan no matter what the purpose of the loan is, you can always get the best deal when your credit rating is good. Practice due diligence when searching for a loan that best suit your needs and find ways to improve your credit score in order to get access to better loan deals in the future.