A Guide to Bad Credit Loans
Getting a loan with a poor credit score isn’t easy. But, it’s by no means impossible. Read on to find out why a bad credit loan could be the right option for you.
So, first of all, you might be wondering why you may need to get a bad credit loan as opposed to a more conventional one? While this won’t come as a shock to many of you, bad credit loans are for people who have a poor credit score. Let’s find out more about what causes this and what types of bad credit loans there are in the market today!
Why might I need to get a bad credit loan?
Having a poor credit score can come about for a number of reasons. For example, it may mean that you’ve previously had trouble repaying debts or you may not really have been in a position where you’ve used credit. As we’re sure you understand that failing to pay back your debts on time is a slightly more logical means of having a bad credit score.
However, this might leave you asking why having no prior credit experience may lead you to needing a bad credit loan? Simple. If you haven’t shown any prior ability to repay credit, then you will still be a gamble in the eye of many lenders. This can therefore disregard how amazing you might be at repaying credit, as no one has any proof!
We also know that the phrase ‘repaying debts’ is a bit ambiguous so let us explain what we mean by that. While your credit score can be affected by a load of different factors, the ones that hold the most weight are loans, credit card repayments and mortgage repayments.
So, our advice would be that if you want to maintain a good credit score or help improve the one that you have then focus your efforts on repaying these sorts of debts. It could go a long way for you to get the loan you desire!
What type of bad credit loan should I go for?
Bad credit loans can come in a variety of ‘ways’. These are intended for those of you with a poor credit background, however, keep an eye out for their potential pitfalls. Bad credit loans are often laden with higher interest rates and lower credit limits due to those with bad credit having fewer options to pick from.
Bad credit loans can often come in the form of an unsecured personal loan. This is where your lender will let you borrow the money without needing you to use an asset of your own as collateral should you fail to pay it back. Alternatively, you may be offered a guarantor loan. This is where another person, (usually a parent) must pay off your loan should find yourself unable to pay it back. They don’t sound too bad do they? And you’d be right to think so too. Let’s see what advantages there are in bad credit loans.
Pros of getting a bad credit loan:
A huge advantage of getting a bad credit loan is simple. For a lot of people, if you can ‘t borrow money via a bad credit loan then you may not be able to at all. This can give you a means of repaying your debts where you may not have had the ability to do so otherwise. This can also be advantageous for those who need a loan to help improve their poor credit score. This is to help facilitate your debt repayments and as a result, pay them off and demonstrate that you can manage your own finances!
Cons of a bad credit loan:
So, while we’ve seen how bad credit loans can help you get back on your feet financially, we’ll need to have a look at their downsides. This is going to be vital for you to make a decision on whether to get one or not! As we’ve already said, the main disadvantage of bad credit loans is the high interest rates that come with them. Due to bad credit loan applicants having shown previous faults with their debt repayments, lenders will raise interest rates here as a way of mitigating this circumstance due to the borrower being a potential risk.
Though, be aware for any potential loan sharks and those who may take advantage of your situation. After all, the more you pay in interest then the less restrictions are going to be placed on you by lenders.
So, with that in mind it’s important that you know your limits and don’t fall for any loans with ridiculous interest rates. It may make it a lot harder to climb out of the financial hole that you’re trying so hard to get out of.
However, if you feel that you have learned the error of your ways and are prepared to take a disciplined approach, a bad credit loan could still be the right option for you. Ultimately, taking on a high interest loan can give you the opportunity to work on your credit score by making repayments on your previous debts. Then, once you have improved your credit score you will be able to get more conventional loans in the future. This can in turn help you pay off the high interest from the bad credit loan and any future repayment responsibilities that you may have.
Which bad credit loan should I go for?
We know there is a plethora of bad credit loans out there in the market leaving you spoilt for choice. So, we also know it’s not the easiest decisions opting on which one to go for. Guarantor loans are ideal for those with bad credit, but it’s ultimately down to if you can afford the loan. You should always seek independent financial advice before taking out any form of credit. Find a loan that you can afford and is right for you. Bad credit loans can be costly, but beneficial too. Think carefully about your options.