Your credit score is an integral part of your application. It’s a lender’s window into your financial lifestyle. Lenders check your credit score to evaluate your creditworthiness and repayment capability, helping them assess their risk proposition when lending you money. The higher the credit score, the better will be the rates that lenders offer you.
But it is tough for credit-challenged people to make it through this part of the process. People with poor credit seldom find reasonable loan offers. If your credit score is too low, you may be turned down by the lender altogether. But several lenders cater to such applicants – you need to know where to look.
Read on to learn more about poor credit loans. Discover some fantastic tips to apply for poor credit loans in the UK.
What is a poor credit loan?
Poor credit loans are essentially high-cost short-term loans designed for people with a poor credit score seeking credit to overcome financial emergencies. Most people resort to this option due to credit constraints and the urgency of their credit requirements. Since these are short-term loans, the typical repayment period could range from a few months to a year.
The real challenge for a poor credit borrower is to pass a credit check due to the scarcity of credit options available to them. Additionally, lenders perceive borrowers with poor credit as high-risk customers. To compensate for this fact, lenders usually set high interest rates on loans for poor credit borrowers.
Interestingly, lousy credit behavior may not always be the reason behind a loan’s rejection. Not having substantial credit history could also be attributed to why lenders reject an application. Without a credit history, you’re as good to lenders as a borrower with a bad one. In such cases, you can follow a step-by-step approach to establish credit, starting with registering yourself on the electoral register.
An excellent way to boost your credit score would be to pay towards any outstanding debts. You can set reminders to help you stay on top of your repayments or utility bills. Alternatively, make use of the direct debit facility, wherein your bills and payments will automatically get deducted from your bank account each month. Your credit score will eventually improve if you’re consistent with repayments.
Can I borrow personal loans for poor credit?
Personal loans are unsecured loans that you can borrow to cope with unplanned expenses without using collateral to secure the loan. These loans help you spread the cost of your venture into affordable monthly installments over a fixed repayment period. The interest rates for personal loans range from 5 to 35% for over £1000, which you can repay within a fixed span.
Qualifying for a personal loan with poor credit can be challenging. High street lenders might turn you down outright. But fret not! There are multiple lenders out there who cater to poor credit borrowers. However, the interest rates for these loans can be unreasonable. So, do your due diligence before opting for such an offer.
Borrowing installments loans online for bad credit
Installment loans can be short or long-term loans borrowed to cover various needs over a fixed repayment period. You repay the loan in fixed monthly installments over a mutually agreed period until the loan is repaid. You owe the same amount on your loan each month until pay off.
You can undoubtedly apply for installment loans even with bad credit. While a bad credit score could curtail your options, you may still find lenders who grant loans to bad credit borrowers.
To apply for installment loans, you need to:
- Be 18 years or above.
- Have a UK bank account.
- Be a legal resident of the UK.
- Demonstrate the ability to repay the loan.
In many cases, lenders are hesitant to grant loans to applicants with a low credit rating. On the brighter side, though, paying off a loan with a bad rating can do wonders for your credit score. Timely repayments will eventually pay off and boost your credit score.
Easy loans for bad credit: what are my options?
- Personal loans: Unsecured loans allow you to spread the cost of your venture into affordable monthly installments over a specified period. These loans help you cope with financial emergencies without the requirement of collateral to secure the loan.
- Guarantor loans: A guarantor is a friend or family member who partakes in the loan agreement with you by co-signing the contract. If you fail to keep up with the repayments, your guarantor will have to repay the loan on your behalf. Your guarantor should ideally have a credible repayment history and earn sufficiently.
- Secured loans: Secured loans or homeowner loans are a form of credit wherein you use your equity in a property as collateral to borrow money. While these loans have relatively low-interest rates, there are specific repayment implications associated with them. If you default, lenders can repossess and sell your property to recuperate their loss.
Check out: Payday Loans: How to Avoid the Debt Trap
Seven tips for borrowing loans for people with bad credit
- When it comes to improving your credit score, don’t leave any stone unturned – pay utility bills, register on the electoral roll, settle outstanding debts, etc.
- Maintain a low credit utilization ratio, ideally below 30% of your credit limit.
- Try to settle the loan as soon as possible – the longer the term, the more interest you accrue each month.
- Leave gaps between each application. It protects your credit score from the damage caused by multiple individual credit checks in a short period.
- Check your credit score for discrepancies, as rectifying these errors could significantly boost your credit score.
- Check if you’re dealing with an FCA-approved lender. You can use the FCA’s Financial Services Register to verify the licitness of your lender.
- Thoroughly check your contract for any concealed fees or charges (early repayment fee, missed payment charge) before signing the agreement.
Your chances of getting credit as a poor credit borrower may be slim but never zero. It would help if you made timely repayments to improve your credit score over time. Continuously maintaining a lousy score can hamper your chances of securing any credit in the future to finance your life goals.
Check out: Things to Know Before Taking out a Mortgage