Individuals encounter essential cash requirements throughout their lifetime. It could be for any urgent reason or to elevate the lifestyle. However, a bad credit score restricts one from achieving their dreams timely. Lenders often prefer profiles with stable credit scores revealing well-managed loans.
On the contrary, bad credit profiles seem risky, and hence lenders charge competitive interest rates on these loans. But individuals can still get affordable bad credit loans. Yes, there is a possibility of one effort toward improving his credit score before approaching a lender for a loan.
One should be incredibly attentive to it in case of approaching the lender for a mortgage, home improvement, or car loan. Loans like these call for decent profile and income management to qualify for better interest rates and terms.
It is where a maximum number of individuals fail. Not knowing certain things about bad credit can sincerely impact your credit score and further life goals. The blog states some crucial facts regarding bad credit loans that will help you decide right.
What do bad credit loans imply? Who is it for?
As the name suggests, bad credit loans are mainly for individuals sharing low or poor credit history with missed payments, CCJs, late payment penalties, bankruptcy, or unpaid high-interest loans.
Individuals with no credit history or 18 + just starting their financial journey may also have no score, implying bad credit only. All these factors impact an individual’s credit standing; hence, he finds it hard to qualify with any mainstream lender.
In contrast, bad credit loan lenders mainly deal with such profiles revealing imbalanced credit history and management. They gauge the affordability basing other factors than simply relying on credit score.
A falling credit score is a massive risk for the lender and hence charges competitive interest rates while providing the bad credit loan. Thus, direct lenders for bad credit provide loans basing income and outgoings as the primary lending criteria. If the person shares good income but bad credit, he may get quick finance.
Depending on the purpose, a bad credit loan could be short-term or long-term.
What should you be familiar with while seeking Bad credit loans?
If you are new to bad credit loans, there is much to know before applying. Knowing specific things will help you realize whether a bad credit loan is apt for your circumstances.
It would also help you manage repayments better. Here are some facts that you should know about bad credit loans:
1) Borrow only if it is right for you
Bad credit loans, as mentioned above, help the low credit profile access immediate cash. But individuals must analyse the purpose. Can you wait to meet your purpose until you build your credit score, or is it urgent? For example, if you plan to take out a mortgage soon but first want to build up your credit score, you can leverage it. But it will not stay positive until your finances are in the best form.
In contrast, if you have a good credit score and can qualify for better interest rates, a bad credit loan is not ideal for you. You can know by checking the credit score requirement. It may not be ideal for you if you have a 740-credit score and the requirement is 520.
2) You must tell the purpose you are using it for
Indeed, some short-term bad credit loans do not ask for clarity of purpose. But if you are heading for a massive loan on bad credit, you must be clear about the purpose. Lenders may ask the same for fear of lending to a disoriented credit profile.
They decide the lending amount accordingly. A short-term loan has a small credit limit and can use to cover everyday needs. You can use it for boiler repair, car repair costs, childcare costs, food costs, etc. Having clarity of purpose and the loan amount to borrow can help you repay the loan in a disciplined way without default.
3) Take out a secured loan for lower interest rates
If you have a higher dream like owning a car, home renovation, and improvement, secured loans can help you fetch better interest rates and terms. The lender here has the security to your priciest possession. The primary condition to qualify for secured loans is pledging an asset to get a loan of an amount that equals the asset’s value.
If you share needs like the home renovation or improvement but have bad credit, pledging a portion as equity to get the loan can help you lower the overall loan costs. These loans are only ideal if your needs exceed £25000.
4) Interest rates could be fixed or variable
Though bad credit loans come with competitive interest rates, you must check whether the loan you approach has variable or fixed interest rates. Apart from that, identify whether you can afford the repayments or not. Check the APR or the total loan cost on loan before applying. It implies the total costs you need to pay the loan.
Variable interest rates can benefit you or can be a loss as it works as per market fluctuations. Fixed interest rates remain intact throughout the loan term. They aren’t impacted by the market or economic changes in the country. Choose as per your need. Fixed interest rates could be apt if you are going for a long-term bad credit loan.
5) Refinancing can help lower liabilities with bad credit loans
Refinancing is ideal for bad credit loans as it helps a borrower switch from the current interest rates to better terms and interest rates. Reduced interest rates help you reduce monthly payments and the overall cost you pay over the loan term.
And reduced costs ease up the flexibility to manage loan and pay it comfortably over the years. However, refinancing may not be right for everyone. Thus, evaluating your circumstances and checking how much you could benefit from them is essential.
6) Guaranteed approval on bad credit loans
Bad credit loans are ideal for improving the credit perspective. You may also get guaranteed approval.
Yes, some loans, like quick loans, payday loans, doorstep loans, and no guarantor loans, are easy to qualify. You may secure a no-obligation quote if you approach a direct lender for bad credit loans on guaranteed approval in any of these categories. No, these short-term bad credit loans do not require a guarantor as the loan amount is small.
Bottom line
These are some facts associated with bad credit loans that are essential for you to decide right. Identify whether a lender provides a prepayment option. If yes, you can free up debt without earning any penalty or save on interest costs.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
