4 Ways to get a loans with poor credit
There have never been more options for bad credit borrowers than right now.
However, with so many different ‘bad credit loan’ formats now on the market, choosing the right one to keep your costs down has taken on greater importance than ever before.
With this in mind, we’ve drawn up the following article to highlight 4 of the best options currently available.
What are Bad Credit Loans?
For people with a bad credit rating the opportunity to borrow money where they would otherwise have struggled.
However, to counter the higher risk the lenders are exposed to, bad credit borrowers will, unfortunately, be expected to pay the price for their previous financial mishaps – typically in the form of a higher interest rate.
- To find out the true cost of a poor credit score, please click here.
To help you along the way, we have drawn up a quick guide to 4 of the highest-profile and most accessible options when looking for loans with poor credit.
1. Friend & family loans
Turning to our family and friends to help us through difficult financial times can offer one of the best options.
Peer to peer lending is increasing in popularity and below we listed some of the positives and negatives.
- Flexible Terms: Because of the informal nature of receiving a loan from family and friends, the terms are completely flexible. Interest and repayments are 100% negotiable between both parties.
- Minimal Charges: As implied above, whereas the interest rate charged by traditional lenders can be very high, this is unlikely to be the case when borrowing from friends and family.
- Quick & Simple to Establish: Some loans can take an eternity to set up because of the checks and paperwork which are required. This will not be the case here.
- Potential Future Issues: The most common reason for people choosing against this option is to worry about potential friction should problems arise in the future. If you are unable to make the repayments, this can lead to a very tricky situation.
- Will Not Directly Improve Credit Ratings: Successfully repaying a loan from a recognised lender will help you to take positive steps towards rebuilding your credit rating. However, a loan from a family or friend will be unofficial and will not directly help in this regard.
The question regarding borrowing from family and friends should not be, can you? Instead, it should be, should you? For further insight and advice, click here.
2. Guarantor loans
If you feel a little too embarrassed to ask someone close for a loan or they would like to help but cannot afford to lend you the money directly, guaranteed loans may offer the ideal solution.
- Quick Loans: The loan process has been designed to provide a quick answer and in some cases, the loan can even be available within a few hours
- No Credit Scoring: The credit rating of the borrower is not checked, this is due to the presence of the third party who will guarantee the repayments
- Typically Larger Lending Capacity: Many bad credit loans are only available for relatively small amounts. Guaranteed loans, however, are available for sums of up to £10,000 in some cases.
- Requires a Third Party Involvement: This can be very off-putting for some people
- Expensive: Although guaranteed loans are one of the cheapest forms of bad credit loans, they are still more expensive than standard unsecured personal loans.
To see more about the difference between secured and unsecured loans, along with finding out which category guarantor loans fall into, click here.
3. Credit Union loans
Credit unions are non-profit organisations which pass along their earnings to members in the form of lower fees and a higher level of customer service.
- Variety of Loan Sizes Available: The majority of Credit Unions are typically happy to offer much smaller amounts.
- Reducing Interest: Interest is charged on the reducing balance of the loan.
- Many Repayment Channels Available: When borrowing from a credit union, you can pay back loans through a variety of channels, such as DD, Payroll deduction, collection points, etc.
- No Hidden Charges: Credit union loans come with no hidden charges and no penalties for repaying the loan early.
- Limited Branch Locations: Because Credit Unions only operate from one place, it can be an inconvenient way to borrow.
- Fewer Services: Credit Unions are unlikely to offer as many services as other lenders.
For more information on Credit Unions, please check out the dedicated Wikipedia Credit Unions page.
4. Payday Loans
Payday loans are the Marmite of the bad credit loan world (people either love them or hate them!).
When used as intended, they can offer a highly effective short-term financial fix. However, due to the high-interest rates and charges associated, payday loans are fraught with danger.
The negatives surrounding payday loans are well documented but the FCA (Financial Conduct Authority) is currently addressing many of the issues.
To see exactly what the FCA had to say, please visit the following article to see how the FCA sets out in detail how it will regulate consumer credit.
Commenting specifically on payday lenders, Martin Wheatley said: “Today I’m putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking.”
- Quick Loans: Typically available with 24 hours
- Smaller Amounts: Because payday loans are generally only available for sums of up to £500, quick repayment will keep your interest payments in check.
- Expensive: Can have very high-interest rates up-to 5000% APR
- Severe Penalties: Missing repayments can lead to severe penalties
Regardless of your preference, always make sure that you compare loans from several different lenders to ensure that you find the best possible interest rate before signing the final paperwork.
One final thought
If you need to borrow, the most attractive options (which will probably cost you the least) are borrowing from friends/family, or credit union.
Though if these are not available to you, and you have an emergency you need to cover with a loan, consider the guarantor loan?