Bad credit is information that is recorded on your credit report. The main problem with bad credit is that most of the lenders will be unwilling to provide loans to those individuals. Bad credit loan rejections can be due to –
- Missed payments
- Past bankruptcy
- Defaulted loans
- Mortgage arrears
- Had/Have CCJs [County Court Judgment] or IVA [Individual Voluntary Agreement]
- Exceeding overdraft
- Previous credit rejections
- Going over credit limit
Why is credit history important?
Lenders check credit reports to determine, whether the applicant is eligible for loan approval and what interest rates can be charged.
- With good credit score, you get more loan options at low interest rates.
- With bad credit scores, you get less choices and the cost of borrowed money is more.
- If you never had credit, then there is hardly any possibility of getting good deals because there is no track record.
Bad credit loans
Online platforms like SimplePersonalLoans offer access to panel of lenders, which cater to every kind of credit record. Actually, bad credit loans are just like any other kind of secured or personal or unsecured loans but are expensive.
Key advantage of bad credit loan acceptance is that it can help to enhance your credit ranking. The flip side is you get less choice of loan providers and need to pay high interest rate. For example, lowest personal loan rate is 3%, whereas lowest bad credit loan charges 14.9%. It means, for one year of £1000 loan with 10% APR [Annual Percentage Rate], you will need to pay £1,100 after a year. You pay £100 as interest.
Before applying for bad credit loan –
Check if you are eligible
Several factors in your credit history will influence your loan application approval like your –
- Existing debts
- Other financial commitments
Every lender differs in their application approval criteria, so find out if each one is fulfilled prior applying. Look for lenders offering eligibility check prior applying. It is called soft search quote. You get an idea of the cost of loan without any compromise on your credit score.
Other alternatives for bad credit loan application
In budgeting loan, you can borrow interest free money from the government up to a specific amount. There are certain conditions that need you to qualify for budgeting loans like income support or pension credit.
You are fortunate, if there is credit union close to where you reside. Credit union offer loan on a monthly interest rate of 3%. However, loans are catered to members having savings account with them.
A close friend or family member with great credit history can become your guarantor of loan payments. Rates are lower because there is an extra security layer, applied by the guarantor.
Peer to peer loans
It is borrowing money from people who have savings, which needs to be repaid with the agreed interest rate within the specified time.
Credit card designed for bad credit Credit card are designed especially for bad credit but accompany high interest rates, low credit limits, and few perks like cashbacks, rewards, and balance transfers.