Bad Credit Loans
A bad credit is when a borrower carries a higher credit risk. When a borrower has a low credit score, it indicates a bad credit. The creditors will avoid lending money to the individuals with a bad credit history as the borrower might default on making the payments.
A bad credit loan is a loan for people with a bad credit history. You get a bad credit history:
- When you have missed repayments.
- When you missed bill payments.
- Or when you have had a failed credit application.
- Or when you have never borrowed in the past and the lenders are unsure if they can rely on you to make the repayments. Hence making you too much of a risk to some lenders.
When should you consider a bad credit loan?
You will only opt for a bad credit loan when there is not much of an option left for you. If there is no way you can manage your finances without having to borrow, do not take a bad credit loan.
Only consider for a bad credit loan:
- When you can manage the loan and its repayments and help repair a bad credit score.
- When there is no other way to manage your current deficits.
- When you want to consolidate your debt or extend the repayment period or cut your interest rates.
- When you have taken a bad credit loan, do not take any further short term loans or credit.
- When you have planned out your finances and are sure that you can make the repayments. Plan for overpayments to pay off your loan as quickly as possible. This is possible when you know extra money is going to come in your way.
Do proper research before taking a bad credit loan. You need to look for:
- The cheapest interest rate that is available.
- Make sure you are eligible to get the loan before applying for it. If the application gets rejected, your credit score will be damaged further.
- Get a better idea of the actual rates available and make the right application.
What is the difference between secured and unsecured loans?
Secured Loans:
If you have a house or an expensive car or property or any other significant asset, then you can use it as a collateral. This will in turn make you eligible for a secured loan as an option. Secured loans are given at lower rates than the personal loans. Sometimes, when you need a huge amount, this will be the only option that you will be left with. But always meet your repayments as you might lose out on the asset you kept as a collateral.
Unsecured loans:
Unsecured loans are given to the borrower based on their creditworthiness. You as a borrower will not have to have a collateral. You must have a high credit score to avail an unsecured loan. The loan is not guaranteed by any asset or property. The interest on the loan is fixed and due at the end of a specific time period.
Are there any alternatives to bad credit loans?
Yes, there are limited alternatives that you can consider before opting for a bad credit loan. The options are:
- Speaking to your current financial provider to offer you a tailored loan considering your circumstances. The current financial provider may be able to help you out in this regard than you going to a new provider for a loan.
- You can get an overdraft on your current account at 0% interest rate for a certain amount. Never cross your limit on the overdraft as the unarranged overdraft fee will turn out be very expensive.
- Credit unions that are community operated can offer a real alternative to banks to those going through financial difficulty. You need to be a member of the credit union to avail the loan. These organisations are supportive and their main intention is to serve their members.
- Credit cards are another option that is available to those with a bad credit history. There are dedicated cards for the people with bad credit ratings. Though they may have lower credit limits or with higher interest rates. Also remember a failed application will damage your credit card further.
- There are payday loans. But it is advisable not to take this loan.
- Use your own savings for as long as you can. It is better to have used your saving than to pay the high interest that are being charged on loans.
- The government also offers interest-free budgeting loans to those who can’t afford their rent. But those with urgent requirements only will receive the loan.
- Turn to your family and friends for a loan. You can work out a mutually beneficial deal out and they will be much more understanding than any financial body. You can agree on a feasible interest. Be clear as to how you will make the repayment as there is a good chance that the relationship may be affected due to this. Agree on a certain time frame and commit to it.
