You may not spend a lot of time thinking about your credit score but if you have a bad credit rating, you may find that it is difficult to obtain what you are looking for in life. Credit is an integral part of modern life but if you have misused credit in the past or you have made bad financial decisions, you’ll find that your ability to obtain credit in the future becomes very difficult.
If you have a bad credit score and you are looking to obtain credit, you need to accept that many lenders or businesses will not provide you with what you are looking for. You need to look for bad credit options, and thankfully, there are options available to you.
Advantages of Bad Credit Loans
The obvious advantage of a bad credit loan is that it is a loan aimed specifically at people who may not get a loan in another way. Banks and traditional lenders are clamping down on the number of loans that they provide and the first way that banks evaluate whether someone is suitable for a loan relates to their credit score. You may have the funds to pay off a loan now but if your credit score is poor, perhaps caused by actions in the past, you will struggle to obtain the funding that you need.
Types of Bad Credit Loans
When it comes to bad credit loans, you will often find that the options available to you come under secured or unsecured loans.
Secured loans are where the borrower pledges an asset or property as collateral to the lender to receive the loan. The presence of this collateral allows the lender the confidence to provide the loan at an affordable rate of APR. An example of a secured loan available to people with bad credit would be a logbook loan. This is a loan where the applicant places their car as collateral to the lender. This allows for a lower level of interest to be applied to the loan but if the borrower fails to make payments, the lender can take the car.
Unsecured loans are where no security or asset is being placed as collateral for the loan, and even if the borrower fails to make payments, the lender is unable to claim any of the property owned by the borrower. The absence of any collateral means that the lender is looking to place a higher rate of APR on the loan. Examples of unsecured guarantor loans include payday loans and guarantor loans.
Given that the secured loan comes with a more affordable rate of APR, you would assume that they are the most attractive or positive loans, but this isn’t the case. This is because the risk of losing a home or car is a very real and major risk, something which many people would prefer to avoid. There is also the fact that many people with bad credit do not have a car or a home that they can offer as collateral. This means that the only option left for many people is an unsecured loan, and this means that many people are left with the prospect of paying a higher degree of interest for their loan.
A guarantor loan is a viable option
One exception to this rule comes with a guarantor loan. A guarantor loan is an unsecured loan but the presence of the guarantor helps to lower the associated APR. While the borrower has a bad credit rating, the guarantor is expected to have a positive credit score. The positive credit score of the guarantor is the factor that allows the lender to provide a loan at a more affordable rate of interest.
If you find someone willing to act as a guarantor for you, you should find that paying off the loan is a simpler process. Acting as a guarantor is a big responsibility, so you must go over the details of the loan, and your finances, with the guarantor. Many people will feel unsure or uncertain about talking about their finances but given that a great deal of responsibility is being placed on to the guarantor, you need to provide them with as much information as is required.
Get to know Which is the Most Affordable Bad Credit Loan?
The term ‘bad credit loan’ refers to a variety of different loans that are targeted at borrowers who will be rendered ineligible for standard personal loans due to their credit rating.
Typically, these loans can prove to be particularly expensive compared to their standard counterparts, and therefore you must find out all of the information that you can before considering applying for one.
When Is The Right Time To Apply For One?
If you need access to more than $1000 and have been rejected by your bank or building society, a bad credit loan may offer the most attainable option.
However, if you wish to explore these options it is important to do your research and then manage it well. By doing this, you will be able to take many of the steps that you need to improve your credit rating so that you will be able to access cheaper financial options in the future.
Types of Bad Credit Loans
As mentioned above, there are a variety of different bad credit loans available, all of which have distinct differences.
Below, we have identified some of the most popular:
• Payday Loans: This type of loan is by far the most widely publicized and should always be approached with caution. Designed to offer a quick fix (essentially to tide you over until your next payday), the APR associated with a payday loan can be exceptionally high. Only available in relatively small amounts of up to approximately $500, full repayment as scheduled will ensure that the costs do not get too high but failure to repay can result in significant costs being incurred.
• Guarantor Loans: This type of loan works in a very similar way to a standard personal loan, except the loan agreement involves a third party guarantor who will be expected to make the repayments if you are unable to do so. These are by far the lowest risk and most attainable of all bad credit loans. If you would like to know where to find out more information, please click on the following link – where I can get a guarantor loan?
• Secured Loans: These are the cheapest option available to ‘bad credit borrowers’ but are associated with significant risk because you will be expected to secure your home against the balance of the loan. Although this will ensure that you can borrow a large sum of money, failure to repay the loan will result in repossession of your property.
• Logbook Loans: Similar to the secured loans above, although far more expensive, logbook loans work by using the borrower’s vehicle as security against the balance of the loan. Failure to make the repayments will result in the lender taking away your car.
Using a Bad Credit Loan to Consolidate Debts
Are you looking to consolidate your outstanding debts? Instead of trying to manage multiple repayments on credit and store cards, loans, and overdrafts, which may be all on different rates and paid out at different times of the month, a guarantor loan can offer the perfect way to repay them all, leaving you with one easy to manage payment.
However, it is essential that find a loan offer you a lower interest rate than you are currently paying with your other debts, otherwise, your overall costs may increase.
What Are The Pros and Cons?
Bad credit loans will be perfect if:
• You have a poor credit history and need to borrow a significant sum of money.
• You need the money quickly for an essential purchase.
• You can afford the monthly repayments.
But always remember:
• That the associated interest rates can be VERY high.
• They should only be used in the case of an emergency.
• You should only ever apply for the minimum amount that you need.
For more information on secured loans – http://en.wikipedia.org/wiki/Secured_loan
For more information on logbook loans – http://www.theguardian.com/money/2009/dec/22/logbook-loans-outlawed
For more information about payday loans – http://www.bbc.co.uk/news/business-16067283