Every citizen based in the United Kingdom has a credit file on them that is kept by the main banks and credit lenders, and this report essentially acts as a track record of their history of borrowing money. It is more commonly known as your “credit score,” and it is usually expressed as a number.
The higher the score, the more you are considered to be a reliable borrower by financial institutions across the country. However, this also means that if you have ever had trouble repaying a loan or bill in the past, this will reflect in your credit score, thereby making it harder for you to borrow money.
Luckily, you can get loans for bad credit here, which is a form of lending that allows you to access funding even with a poor credit history or low credit score. For instance, it is possible to find yourself with a bad credit rating but a good income, in which case these loans can help to ensure that you aren’t being unfairly held back financially by mainstream lending institutions.
However, depending on how much money you require, there are usually a wide variety of loan options from UK Bad Credit Loans to choose from, which can sometimes make it difficult to tell what is the right option for you.
Types of bad credit loans
Secured loans
When it comes to bad credit loans, secured loans are the most common option, as they help to reduce the level of risk to the lender through the use of collateral. In most cases, the borrower will need to put up some form of security like their car title or house, with the downside being that they can be repossessed should the borrower end up defaulting. However, the added benefit of these loans is that they typically come with low interest rates and flexible repayment terms.
Guarantor loans
Guarantor loans are another form of bad credit lending that is designed for borrowers who may have few other options, as they are effectively guaranteed by a close friend or family member that promises to repay the remainder should you end up defaulting. However, the downside to these types of loans is that they tend to come with high rates of interest, due to the added risk to the lender.
Personal loans
There are some bad credit personal loans that borrowers with less than stellar credit scores can apply for, but the problem with these loans is that there is often a strict limit as to how much you are able to successfully borrow. On top of that, they also tend to come with significantly higher APRs, as the lack of a guarantor or collateral can often make banks uneasy about your likelihood to make your repayments on time.
How to be eligible for bad credit loans
In order to be eligible for a bad credit loan in the UK, you need to be at least 18 years of age, as well as a permanent resident of the UK. Furthermore, you mustn’t be bankrupt and need to prove that you are actively employed or own a business that provides you with a steady stream of income.
Aside from that, it is important to keep in mind that lenders often take into account factors like what you do, how much you earn, and even your spending habits when deciding how much funding to approve you for. Additionally, you should also be aware that all legitimate UK lenders are legally required by the Financial Credit Authority (FCA) to conduct a credit check before making you a firm offer.
This means that if you come across a bad credit lender that offers you a no credit check loan, you should take extra care because it means that they are not FCA-authorized lenders and will not provide you with an adequate level of legal protection.
Things to consider before taking out a bad credit loan
When it comes to borrowing, there is no loan that comes without risk, secured or not, and as such, it is vital that you always think carefully before accepting any loan offer. In this respect, there are two main things that you should always ask yourself before taking out a bad credit loan;
Can I afford the loan?
When it comes to bad credit lending, the general principle is that the lower your credit score is, the less you will be able to borrow and the more expensive you can expect the lending terms to be. So, while you can easily get loans for bad credit here, you should always ensure that the loan repayment schedule is able to fit well into your monthly budget by not borrowing more than you can reasonably afford.
What are the risks of defaulting?
Defaulting on a bad credit loan can often be expensive, and it can potentially involve having to deal with collections agencies or even legal action. Furthermore, some bad credit lenders may report your lack of repayment to the relevant credit bureaus, which in turn could negatively impact your credit score as well. However, if you manage to stay on top of your repayments, then you shouldn’t have anything to worry about.
Benefits of taking out a bad credit loan
While it is true that bad credit loans tend to come with low limits and high interest rates, taking a bad credit loan can also be a great opportunity for you to improve your credit score. After all, if you take out a loan and remain consistent with your repayments, you will be able to prove to creditors that you are a reliable borrower.
This in turn can help boost your credit rating and allow you to secure better credit deals with lower interest rates, even from banks and other financial institutions. It is for this reason that you should always make an effort to create a monthly budget and stick to it, which should help you ensure that you don’t miss out on loan repayment.
Furthermore, you should avoid adding to your debt while you are paying off the loan, as it could end up putting more pressure on your ability to repay your loan. And in the event that you find yourself unable to make a repayment, you should make sure that you speak to a lender as soon as you can in order to discuss what options are available to you.
