Read on to find out about the best loans for bad credit.
Loans For Bad Credit
If at any point in your life, you've needed to borrow money, you're most likely familiar with the concept of a credit score and why having a strong credit rating is essential.
You may not have ever had problems with this personally, but many people have a poor credit score that prevents (or at least makes it more complicated) them from obtaining loans, credit cards, or even mortgages.
Naturally, it's clear how this could lead to frustration and stress, especially when you're in dire need of financial assistance and no one wants to extend an arm.
Fortunately, there are still a few lenders that offer loans for bad credit which is ideal for people with poor credit history, and in this article we'll explore what they are and where to find them. Let's get started!
Lenders that Offer Competitive Rates for Bad Credit Loans
While you've got some options when it comes to securing a loan, not all lenders are created equal.
For example, while some lenders may specialise in providing low/attractive interest rates, they may not give out larger loan amounts.
Let's take a quick look at some of the lenders you have at your disposal.
|1. Bamboo Loans||★★★★★||Click Here|
|2. Everyday Loans||★★★★★||Click Here|
|3. Amigo Loans||★★★★★||Click Here|
1. Bamboo Loans
This is a solid example of a UK-based lender that specialises in providing personal and unsecured loans for those with bad credit.
Not only have they streamlined their application process by removing the need for a guarantor, their loans range from around £1,000 to £8,000 with repayment terms of 1 to 5 years.
In addition, they have very competitive interest rates offered over a fixed term. They range from 26.9% to 69.9% APR depending on your creditworthiness, so it's worth taking a look at what rates you'd be able to get at this moment.
Bamboo Loans also offers a free credit checker tool to give a little bit of assistance to anyone who's having issues understanding their credit rating and how to improve it.
2. Everyday Loans
Now let's look at Everyday Loans. Similarly to Bamboo Loans, they're okay with less than perfect credit, and receiving a quote from them will certainly not impact your credit rating.
Their loans range from £1,000 to £15,000 over a period of 2 to 5 years, but it's worth noting that their rates are on a case by case basis, so make sure you speak to one of their support team members if you'd like an accurate quote.
They're also a direct lender rather than a broker, so this means you can cut out the middleman and avoid paying any random application fees that you might find with other lenders.
3. Amigo Loans
Our last recommendation goes to Amigo Loans, another UK-based lender that specialises in offering guarantor loans to individuals with bad credit.
Their services are actually a little bit different from the other two lenders, as you'll need to have a guarantor who can support your loan application, and they'll need to have a good credit score.
In this kind of scenario, the guarantor acts as a co-signer, offering additional security to the lender and increasing the likelihood of approval – think of it like collateral, but instead of having a car on the line, it's your guarantor's credit score.
Generally speaking, this is a fantastic option for people with bad credit scores as they can access all the same perks you'd get from a traditional loan because it's not credit that influences the loan.
In terms of the numbers, Amigo Loans offer sums of up to £10,000 with interest rates starting from 49.9% APR, which is pretty competitive for a guarantor loan.
What is a Bad Credit Score?
Put simply, bad credit is a term used by banks and other financial institutions when they're describing a credit score that's less than optimal.
Without jumping the gun here, credit scores themselves are simply a three-digit number ranging from 300 to 850 that represents how reliable someone is at repaying their debts.
Anything above 580 is widely considered to be a good credit score, and as such, the banks roll out the metaphorical red carpet for you when trying to secure a loan/credit card. They're aware that you're likely going to pay it back promptly and without any hiccups, making it an enticing offer for the bank.
Conversely, those with a credit score below 580 are less favoured by the banks, as it signifies that you might be less straightforward when it comes to paying a loan back.
As a result, any borrowers with low credit scores typically have trouble obtaining loans from traditional lenders.
Importance of Finding The Best Loans for Bad Credit
If you find yourself in a situation where you have bad credit, it's seriously in your interest to rectify it if you're looking to improve your financial health in the long term.
Aside from certain, more mainstream, lenders refusing to issue loans for you, some lenders actually try to take advantage of your poor credit score by offering you loans with high-interest rates and generally unfavourable terms.
Watching out for this is crucial as an overindulgence in cheap, “too-good-to-be-true” lenders can trap you in a cycle of debt, making it even harder to improve your credit score.
On the other hand, if you compare bad credit loans online, you'll see there's a range of options specifically designed to help you rebuild your credit score by offering affordable interest rates and repayment terms.
The idea is that by making timely payments on these loans, you can demonstrate to future lenders how you're a responsible borrower and have improved your credit score.
Understand Your Credit Score
So, how exactly is your credit score calculated? Basically, the final score you'll see when taking a look at it is comprised of a few different factors:
- Payment History
- Credit Utilisation
- Length Of Credit History
- Types Of Credit
- New Credit Inquiries
Out of all of these, the two most critical variables are always payment history and credit utilisation, making up 35% and 30% of your score, respectively. Payment history looks at whether you have paid your bills on time, while credit utilisation looks at how much credit you are using compared to your credit limit.
No matter the reason, it's always worth keeping regular tabs on your credit score, but this is especially important when you're planning to apply for a loan or credit card.
If you check your score on a more regular basis, it gives you a more accurate and up to date picture of where you currently stand. This gives you an opportunity to make any necessary changes if there's any glaring errors.
For example, if you have a high credit utilisation rate, you can pay down your balances to improve your score.
How to Check Your Credit Score
While it sounds slightly complicated, the process of checking your credit score is actually pretty easy.
At this point, you can utilise a few different credit reference agencies like Experian or Equifax. These agencies check up on your credit history and piece all the relevant information together to give you your own, unique, score.
First, you'll typically have to start an account on whatever agency's website you choose and provide them with a bit of personal information. Don't worry though, it's a fairly unobtrusive process and you'll often just need to give them your name, address, and date of birth. You might also be asked to give them any details surrounding your income and employment.
After you've given them all they needed, the agencies will begin generating a credit report and score specific to your own personal finances. This report that they make shows you your credit history, including any loans, credit cards, or other forms of credit you've applied for or used in the past. It also points out any times you've missed payments.
Aside from those credit reference agencies we just mentioned, you'll likely also enjoy using credit monitoring services to keep an eye on your score. These services allow you to monitor your credit score and give you reports on a regular basis, often sending alerts when there are any changes or updates to your credit file.
While there's often rumours that regularly checking your credit score can adversely affect your credit rating, we need to put these to bed as they're simply not true.
In fact, checking your rating at frequent instances lets you identify any errors that might be apparent in your credit report, and you can then arm yourself with this knowledge when disputing and correcting them with the credit reference agency.
Consider Different Types of Loans
As we touched on earlier, many of the major and more traditional lenders are probably unwilling to extend credit/trust anyone who has a below average credit score.
However, all hope is not lost! Not everyone is always going to have a stellar credit rating, and financial hardship/other unfavourable circumstances can quickly result in your rating spiralling out of control. The banks know this, which is why there are several types of loans that are specifically available for people with bad credit.
In this section of the article, we'll explore the different types of loans available and provide insights into the pros and cons of each of them.
These are loans backed by collateral, which typically means providing an asset to the lender that they can seize if you failed to make the payments. Some of the more common forms of collateral include things like a car, home, or other valuable possessions you may have.
Secured loans are often easier to obtain for people with bad credit since the lender has a safety net in the form of collateral.
We mentioned earlier how a low credit score normally indicates that you have trouble paying the loan in a timely fashion, which is a big concern for the lender. Since you provide them with something valuable upon receiving the loan, the risk on their end is mitigated as they simply seize the asset until you repay it.
As a result, a secured loan usually has lower interest rates compared to unsecured loans.
Pros of Secured Loans
✔️ Easy to obtain for people with bad credit.
✔️ Lower interest rates compared to unsecured loans.
✔️ Larger loan amounts may be available.
Cons of Secured Loans
❌️ Risk of losing collateral if payments are not made.
❌️ Longer approval time since collateral must be assessed.
❌️ Possibility of incurring additional fees.
On the other hand, unsecured personal loans don't require any kind of collateral and are backed only by how high your credit score is. While you don't need an outrageously high credit score to take one of these out, you might find that they're a bit harder to obtain if you have a sub 500 credit score.
So, although they're not specifically built for people on the wrong side of the credit rating, you can still opt for one of these loans if you're not in the doldrums yet.
Unlike their counterpart, unsecured loans usually have higher interest rates compared to secured loans as there's no collateral to back you up.
Pros of Unsecured Loans
✔️ No collateral required.
✔️ There's typically a faster approval time in comparison to secured loans.
✔️ A good option for people with no collateral or those who don't want to risk losing their assets.
Cons of Unsecured Loans
❌️ Fairly high interest rates which may put some people off.
❌️ Might be a bit harder to obtain a smaller loan – often it's only larger loans that get offered.
❌️ Not as easy to obtain for people with bad credit than it is for a secured loan.
If you're looking for a loan that can help you in the short term, payday loans are another popular option that are designed to be repaid whenever your next payday is.
What sets these loans apart from something like an unsecured loan is how easy they are to obtain, even if you have a poor credit rating.
However, while they're often a lifesaver for people who find themselves living pay-check to pay-check, this kind of loan normally comes with extremely high-interest rates and fees, which can make them a risky financial option.
Think of it this way: like we've illustrated, if you're unfortunate enough to have a bad credit rating, you're going to struggle to find a lender when looking for loans. But what about when you actually have the capital to repay it, you're just not trusted enough to do it?
That's where alternative options like payday loans come in. Just make sure you don't rack up a bunch of added fees in the process by paying it back late.
Pros of Payday Loans
✔️ Easy to obtain regardless of your credit score.
✔️ Fast approval time.
✔️ Small loan amounts may be available.
Cons of Payday Loans
❌️ Abnormally high interest rates in comparison with other popular loan options.
❌️ Risk of getting trapped in debt cycles.
❌️ Limited loan amounts.
Lenders that Specialise in Bad Credit Loans
As touched on earlier, having a bad credit rating is not the be-all and end-all of your life, and there's actually a bunch of different lenders that specialise specifically in providing loans to people with bad credit.
These lenders are aware of the unique challenges that people with bad credit face and are happy to take on the risk. You might think this sounds a bit sketchy, but this isn't inherently true.
More often than not, the lenders that might offer a bad credit loan are just financial institutions that don't have the resources of other industry juggernauts, and as such they need to make money from interest fees/etc.
There's nothing malicious about it, and you shouldn't automatically assume they're a scam just because they want to help out those in need.
Shop Around for The Best Rates
Remember, receiving loans without the perfect credit score is harder, but by no means impossible!
The key for this sort of thing is to take a look around different lenders and compare loans so you're left with the best rates for your current status.
In this part of the article, we'll discuss why it's worth comparing rates between different lenders and offer you some strategies for finding the best ones.
Why is it Important to Compare Rates from Different Lenders?
Not only does the interest rate you'll receive have a tangible and significant impact on your monthly payments, but it also lets you know the total amount you'll have to pay back over the life of the loan.
As a result of this, it's paramount you prioritise finding a lender that can give you a competitive rate when it comes to interest, especially if you've got bad credit. This is also a pretty sure-fire way of saving money in the long run as you're not throwing money down the drain in the form of interest.
Strategies for Finding The Best Rates
Fortunately, there's a few different strategies you can employ when trying to compare rates. One of the more popular options is to use one of the many comparison websites on the internet like Credit Karma.
Services that fall into this category are incredibly effective when looking for the best lenders as you get to see all of them in one convenient location, and you can normally filter them based on your specific requirements.
All of this stuff adds up and can make all the difference when seeking the best deal possible.
Another strategy is to work with a loan broker. These are people that can help you find lenders that specialise in bad credit loans and can even leverage their financial nous to negotiate lower interest rates on your behalf.
Yes, they do charge a small fee on behalf of their services, but it's likely that whatever money you save on interest will far outweigh the cost of hiring a loan breaker.
Beware of Scams
Unfortunately, the desperation involved in getting a loan when you're experiencing financial hardship has opened the window for scammers looking to make a few quid from those in need.
Let's explore some of the more common scams targeting people with bad credit and provide tips on how to avoid falling victim.
One of the oldest tricks in the book for scammers is the “advance fee loan” or “guaranteed approval” offer. In this scam, a lender promises to approve your loan application regardless of how shaky your credit history may be, under the condition that you first pay an upfront fee. Do you see where this is going?
Once you pay the fee, the lender mysteriously disappears, and you never receive any more.
Naturally, these scams are particularly harmful as they prey on those already struggling financially and often make their life worse.
Next up we have the “phishing scam”, where fraudulent lenders contact you by email or over the phone to request some personal information like your bank account details.
As this can be a pretty standard procedure in some application processes, they prey on your ignorance by claiming to be a legitimate lender and will instead use the information to steal your identity or access your bank account.
Remember, before signing up to any financial lenders, please exercise some critical thinking and perform your due diligence before submitting an application or providing any personal information.
Ensure you're doing things like checking credentials, reading reviews from previous customers, and double-checking they're registered with the relevant regulatory bodies. You should also be wary of lenders who are pushy or who pressure you to sign up quickly.
No matter how awful the feeling of desperation is when you need a loan, there's no worse feeling than being ripped off.
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