Do you have a poor credit rating? Is your credit rating affecting your ability to get a loan?
Countless numbers of people are now unable to borrow from banks because their credit score says they can’t be trusted to make repayments and this has created a major problem for many borrowers in the UK.
For a huge period of time, the concept of borrowing money was based on your reputation; bank managers were a part of the community and personal relationships mattered. Common sense appears to have deserted the financial community, or has it?
Turning To an Overdraft?
One of the first places people used to turn when they struggled to keep their financial head above water was their overdraft but banks will only tolerate people being stuck in an overdraft for so long.
Most banks will run reports that monitor bank accounts and will look for signs that people are struggling.
For more information regarding overdrafts please the dedicated Wikipedia page by clicking here.
If a bank thinks you’re relying on your overdraft too much they have the ability and have been known to take the whole overdraft facility from the account.
They’ll usually time the removal of an overdraft with your payday, so the money coming in repays the overdraft but leaves you with very little to cover any additional costs.
This has led to the quest for alternative methods of obtaining new credit.
A Second Chance
It hardly seems fair for people to be penalised for a mistake for ever. Yet for anyone who has finds themselves answering yes to any of these questions below, it became crucial that something new became available offering an achievable alternative:
- Do you have a poor credit record/history?
- Do you have no credit history at all?
- Have you moved address regularly?
- Have you fallen into arrears on loans or mortgage?
- Do you have any CCJs (County Court Judgements)?
- Have you defaulted on previous credit cards, accounts or loans?
- Even, are you self-employed?
Bad credit loans are designed to give people that alternative.
Don’t Fit The Mould?
Many people no longer fit the perfect mould that is expected by nearly all High Street lenders in order to be eligible for a standard personal loan but this is no longer the problem that it once was.
All bad credit loans obviously have their own advantages and disadvantages but they all offer options where there recently were none.
Turning To a Guarantor Loan
One of the most popular alternatives is a guarantor loan which work by offering loans specifically created for anyone with a poor credit rating.
This may sound a little unusual because lenders don’t usually seek our borrowers with poor credit ratings but the risk to the lender is balanced by using family members or friends with better ratings to act as guarantors who will pay the debt off if customer defaults.
For an explanation regarding guarantor loans and their benefits please view the video below.
What are the Pros?
The process surrounding many bad credit loans is designed to offer a swift resolution. Decisions are often made within minutes, with the balance appearing in your account shortly after the application is granted.
Depending on the lender, amounts ranging from £500 all the way to £10000 are generally available at a significantly reduced rate when compared to payday loans.
Having a guarantor makes it more likely you will be accepted for a loan where High Street lenders would reject you. Some allow you to repay early without charging you early repayment fees.
Interest rates are still comparatively high when compared to standard unsecured person loans but because the majority of these are unattainable to borrowers with a bad credit rating, they are still an attractive and realistic proposition.
The main area of worry for people applying is that having a guarantor means that they can be chased for the money in the event you don’t pay your debts. This can of course be avoided by making the repayments as and when they are required.
Demand for payday loans soared during the recession with consumers becoming increasingly strapped for cash. But people facing cash-flow problems must look into this type of loan for bad credit before deciding this is the right option.
Payday loans have been specifically designed to bridge the gap until payday if you find yourself short and are as such are generally short-term loans typically of up to £400 provided generally for a maximum of 30 days.
Don’t Be Reliant on Payday Loans
The high cost means such loans should only be a one-off and you should be confident you can pay it back on time. They should not be something on which you’re reliant on a monthly basis, and definitely not to service other debts.
Warning: You shouldn’t take out payday loans if you know you can’t pay them back within a month, nor use them to service other debts as this can lead to significant problems.
Borrowing For Need
Due to the interest rates associated with some bad credit loans, and in particular payday loans, they should only ever be used for emergencies rather than luxuries.
Credit Scoring Problems
It is very difficult for a consumer to know in advance whether they have a high enough credit score to be accepted for credit with a particular lender. This is due to the complexity and structure of credit scoring, which differs from one lender to another.
Lenders do not have to reveal their credit score, nor reveal the minimum credit score required for the applicant to be accepted. It is impossible for the consumer to know in advance if they will pass a lender’s credit scoring requirements.
Improving Your Credit Score
Along side actually getting hold of some extra money, the most important aspect for many people is receiving the opportunity to do something about it.
Many borrowers find themselves stuck between the proverbial rock and hard place when faced with a poor credit rating because the best way to turn things around is to demonstrate an ability to repay debt on time. Until fairly recently, this has often proven to be very difficult though due to the unwillingness of lenders to take on the risk of a borrower with a poor credit rating.
How To Do It?
If you are in a position where your credit report can’t be given the quick-fix treatment such as deleting an entry that doesn’t belong there, bad credit loans can help to turn things around.
If you continue to make the scheduled repayments, not only will successful applications for bad credit loans prove to be immediately beneficial, they will also help in the future when you make any applications you need to make for credit in the future, be they a mortgage, credit card, or loan.
Otherwise there are various other ways to improve your rating over time but the best thing to do is to show you can handle the credit you do already have by using it carefully and making the required payments on time.
Don’t Give Up
Even when things may seem bleak, it is important to remember that there are a number of loans for bad credit out there ensuring there is hope for everyone.
If you would like a little more information regarding the ability to bring debts under control and turn your credit rating around, the UK government offers a range of hints and tips which can be accessed here.
Emma Farmer has been a freelance finance writer since 2005. She now works as blog writer for Guarantor Loans UK which places a strong focus on all types of bad credit loan. For more information please click here. An extreme sport fanatic who completed the London marathon for the first time in 2013, she lives in London, England with her husband and 2 children.