Can Loans Be Acquired with Bad Credit?
First, it’s important to understand what bad credit is.
When you apply for loans, the lender will always check your credit score.
This will tell them how reliable you are as a borrower.
If you’re considered to have bad credit or a low credit score, it will suggest that you’ve struggled to keep up with debt repayments in the past.
However, there are plenty of reasons why you might have a low credit score.
For example, the reasons listed below are some of the main examples of why you would be described as having bad credit.
- Late monthly repayments
- Missing payments in the past
- Bankruptcy
- Individual voluntary arrangement
- County court judgments
- Hard searches on your credit
A hard search is recorded every time you apply for credit – too many in a short time frame doesn’t look good as it may suggest that you are desperate for credit.
Interestingly, if you have never borrowed in the past, you wouldn’t have had the time to build up a credit history and thus would be considered to have bad credit.
Unfortunately, any of the above reasons will make it hard for you to get accepted for a loan because you will be considered high risk.
What kind of loan can you get with a poor credit score?
It is possible to find loans for bad credit direct lenders. If you have a poor credit rating, the choice of loans available to you will be very limited. However, there are still options out there.
Personal (unsecured) loan: This type of loan is one example of what you could get with a bad credit rating. With this kind of loan, you’re not required to use an asset as collateral, such as your house or car. However, the interest rates on any money you borrow will be higher.
Secured Loan: This type of loan is secured against an asset, usually your home. It sounds risky because it is. If you are unable to keep up with repayments, you could potentially lose your home. These kinds of loans are described as homeowner loans or second-charge mortgages. The only advantage with this kind of option is that because it’s secured, lenders will be more likely to lend you money because of the secured asset. Consequently, the rate of interest will also be much lower.
Guarantor Loan: A guarantor loan basically guarantees someone will pay off the debt should you not be able to. Someone such as a family member or friend, with a good credit rating, is often used. Again, because there is someone secured to pay the money should you not be able to, lenders are far more likely to let you borrow it. It also means the debt is unsecured, so you don’t have any assets to lose.
Some of the main advantages of bad credit loans include the fact you get access to your funds very quickly – often within 24 hours of them being offered. If you do repay them online, this will give you an opportunity to rebuild your credit score for the future. The monthly repayments are fixed which makes it easier for you to budget.
On the other hand, there are some disadvantages. There is no flexibility with loan repayments so if you do miss your monthly repayments, you risk damaging your credit score even further. As mentioned briefly, loans that are secured with an asset such as your house is very risky should you not be able to make the repayments. Plus, the interest rates will often be higher.
In conclusion, there is a lot to consider before taking out a loan with a bad credit score. It’s important to do your research and shop around.
