Bad credit loans explained

If you have less-than-perfect credit then getting a loan can be difficult. However, there are options available to you that could help you out when you need it and might help you to improve your chances of borrowing in the future.

Bad credit loans

These loans are designed especially for people with bad credit and are available from various lenders. There are still credit checks done and other requirements which need to be met to be eligible for a bad credit loan, for example age restrictions and in some cases employment, but they can be a massive help if you do not have many options. The interest rate on these loans is often high as it is a 'risk' for the business, but you should be made aware of this before you decide to take out the loan.

Managing your bad credit loan

To ensure that you have more borrowing options in the future it is important to manage your loan well. Make your repayments in full and at the right time, whether they're weekly, monthly or quarterly, and make sure you are always aware of what extra fees and charges there are so you know how to avoid them. All lenders will give feedback to credit reference agencies, so if you've shown that you can repay your loan on time then this will slowly help to build your credit rating and take steps to making bad credit a thing of the past.

Secured Vs Unsecured

If you have bad credit and want to borrow a large sum of money, many lenders may require you to take out a secured loan. This will mean putting your house up for collateral, so that if you are unable to make your repayments then your house can be used to pay off the debt. The interest on secured loans will often be lower, but you will need to be a homeowner to qualify and if you find yourself in financial difficulties you could be at risk of losing your house. If you have bad credit and do not need to borrow a large amount then an unsecured personal loan might be better for you. The interest rate is often higher, however there is less risk should you find yourself behind with your repayments and may have more choices available to you.

What has caused my bad credit?

You might have bad credit because you have CCJs or defaults against your name. Perhaps you have gotten into difficulty repaying your debts in the past and continually missed payments. In some extreme cases, you may have had to declare yourself bankrupt. All these things will have an impact on your credit score, and may result in you being refused credit. You can request a copy of your credit report from a credit reference agency for a fee of £2. It is always good to check your report to make sure everything is correct, as you don't want an error to be the reason you are refused for credit. Experian, Equifax and Call Credit are the biggest credit reference agencies in the UK and are good places to start.

Representative Example:

£200 loan repayable over 20 weeks at £15.00 per week, Rate of interest 50% fixed; Representative 756.5% APR, Total Amount Payable is £300.

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