A Guide To Unsecured Bad Credit Loans
All of us must borrow money every now and then, particularly right now when times are tough, however getting credit is not always a simple task. Nowadays, building societies and banks are selective about who they lend to, because they want to avoid bad debts that could harm their profits.
Your Credit File Information
A lender will consider many variables when assessing your loan application, however your credit file ranks among the most significant. The three major credit reference firms are Equifax, Experian and CallCredit – and these all have a copy of your file. This report has lots of data about your spending habits, such as your credit cards, mortgage and other types of loans.
After you submit your unsecured loan application, the building society or bank will look at the data in your credit file, as well as other details about your financial history, then assign a credit score to you. Unlike many people believe, credit blacklists do not exist, and you are not assigned one credit score. All lenders have different ways of working out a score, therefore you might be accepted for a bad credit unsecured loan by one bank and declined by another.
People Who Have Never Borrowed Before
Some lenders are reluctant to hand over money to first time borrowers or people with a poor credit file. This might sound odd, however, new borrowers do not have a track record, either bad or good, which means it is hard for building societies and banks to determine their reliability. Therefore, do not be shocked if you discover that it is hard to access credit when you first apply.
No Guarantor Required
All the loan providers on our comparison table above offer unsecured bad credit loans that dont require a guarantor, which means you won’t have to call on a friend of family member to repay your debt if you are unable to.
Unsecured Poor Credit Loans – How Your Score Can Be Damaged
Credit scores are used to gauge how creditworthy you are. In the past, if you have repaid your debts on time, you shouldn’t encounter any issues accessing unsecured loans in future. However, if you have a history of making late loan payments, or missing credit card payments, this will appear on your report and might negatively impact your credit score. Also, your credit score will suffer if you have experienced more severe financial problems, like a County Court Ruling or bankruptcy.
How Your Bad Credit Score Can Be Improved
It is possible to raise your credit score in several ways. For instance, you ought to register to vote, and refrain from making multiple credit applications, because lenders tend to decline borrowers who have been denied credit previously. In addition, it is wise to ensure that your credit report is updated and accurate. By using our poor credit unsecured loan application above we compare numerous lenders in one go, saving you making multiple applications.
You need to prove that you are financially responsible by coping with your debts properly, so personal loans can be useful for people who have a poor credit history. Providing you settle your payments in full and on time each month, you can show lenders that you have turned a new leaf from your past financial misdemeanours.
High Rates Of Interest
Numerous mainstream lenders turn away borrowers with bad credit scores, however some specialist companies are happy to provide personal loans to those with low scores, although the cost can be big. Building societies and banks might advertise attractive low interest rates. However, the rates only must be offered to fifty-one percent of people who are accepted for a loan. Virtually half the people who borrow pay another — typically higher — interest rate.
Looking At Alternative Options
There are many alternative options to apply for bad credit loans, if your credit score is low. These include:
A Credit Union
If there are any credit unions in your locale, they might be a sensible choice if you have poor credit. The reason for this is that credit unions are not permitted to charge more than three percent interest per month on loans.
This equates to roughly 42.6 percent APR. Nonetheless, you must join credit unions before you can borrow from them, and some might require you to set up a savings account with them initially. To access more information on credit unions and discover how you can borrow from them, visit moneyadviceservice.org.uk/en.
A Budgeting Loan
If you satisfy certain criteria, you can receive a loan from the government, free of interest, for as much as £812 to use for specific costs. To receive one, you must have been in receipt of one of the following benefits for a minimum of twenty-six weeks:
- Income Support
- Pension Credit
- Support and Employment Allowance Based on Income
- Jobseekers Allowance Based on Income
If you receive Universal Credit rather than these benefits, you might qualify for a Budgeting Advance as a substitute. The Citizens Advice website has more information about this. For further details about budgeting loan applications, refer to the Gov.UK website.
Additional Borrowing Options
Here are some more ways that you can borrow the cash you require, if your credit score is low:
Credit cards for bad credit applicants: You can enhance your credit history and avoid paying interest with these types of cards, if you meet your monthly payments. Nonetheless, the credit limits on these cards rarely exceed £1k, and the interest rates are steep if you require a longer repayment period.
P2P loans: Certain P2P lenders are happy to accept applications from people who have low credit scores. The interest rates with these lenders can be less expensive too.
A guarantor loan: Loans like these eliminate lending risks, by getting a third party to back your loan repayments. Due to this reduced risk, the interest rates might be lower. However, you must find someone who is prepared to be your guarantor.
Secured homeowner loans are a viable option if you own your own property, although any loan taken out through this method would be secured on your home, meaning it would be at risk of reposession if you did not keep up with repayments.
If you are struggling to obtain credit for purchases such as household items then you could apply for a shopping catalogue with credit. Most catalogues such as Very.co.uk, Littlewoods, Savvy, Dial a TV and Ace 24 will allow you to make buy now pay later purchases and give you a graceperiod of around 30 days (depending on the catalogue) before you have to pay for the items. Some will also give you additional benefits such as a 0% interest on purchases and a longer repayment term, much like a 0% purchase credit card, so you can repay the balance over a longer period.
Applications For Short Term Bad Credit Loans
If you opt for bad credit loans, prior to applying you ought to find out whether you will be successful. Along with your credit history, there are a few other variables that will determine whether the lender accepts your short term lending application. These include:
- How old you are
- How much you earn
- The other commitments you have financially
- The current debt you have
All lenders set their own criteria for applications, so make sure that you satisfy each point before applying. To understand better whether your loan application will be successful, search for lenders who provide pre-application eligibility checks.
Often, these are known as soft search quotes. As well as telling you whether your application will be accepted, these checks reveal the cost of the loan without impacting your credit score.
Up to £5,000 Unsecured Loans For Bad Credit
Finance.co.uk compares many bad credit lenders who can facilitate a loan of up to £5,000. Our easy to navigate comparison tables above help you compare poor credit lenders and search by APR, Loan Amount and Loan Term help you make decisions faster. You can also use our online application and we will search the best deals for you.
Because people who have a bad credit history are charged higher rates for personal loans, it is particularly important to shop around to get a good deal. Although your choices are more limited when you have poor credit, comparing the prices of different lenders on price comparison websites will help you to find the cheapest possible loan.
Bad credit lenders must quote representative APRs for their loans. These are the rates that a minimum of fifty-one percent of people receives when applying, which gives you an indication of what the cost will be.
Furthermore, it is vital only to apply for a loan if you believe that you can cope with the debt. If there’s a good chance that you could encounter financial difficulties, you should seek assistance from a complimentary counselling service, like Step Change or Citizens Advice.