Unsecured Personal Bad Credit Loan

If you are in arrears with a credit card or loan, have been late or missed payments, or have a CCJ (county court judgement) you will have bad credit. An estimated 1 in 5 people in the UK have bad credit - it can happen to anyone, and if you find yourself with a bad credit rating there's nothing you can do until you deal with your arrears and get back into good credit again. But if you are looking to borrow money, there are possible options depending on your circumstances. One of them is called an unsecured loan for bad credit.

An unsecured loan for bad credit will not require any security for the loan amount you intend to borrow. Secured loans demand collateral against the loan, which ensures that the loan company can recoup the loan amount if the borrower defaults on repayments by selling the collateral, which is usually their home. Borrowers who do not own their home may decide that an unsecured bad credit loan is for them, but if homeowners do not want to put their homes at risk and secure loans against them, they are also free to apply.

Since the borrower is not required to provide security against the loan and is already in bad credit, the lending company will reflect their increased risk in higher rates of interest. Although the lender has no claim on any assets, when loan repayments cannot be met, they may resort to alternative means of legal action to reclaim the loan.

The interest rate that a borrower is offered for an unsecured bad credit loan will be completely dependent on the borrower's specific personal circumstances and the interest rate offered will not be the same as someone else's. The loan amount, borrower's income, credit score and financial situation will all be assessed to determine a specific interest rate. Many companies offering bad credit loans will provide a free quote so it makes sense to spend a few minutes supplying some basic information to compare quotes between several companies. Do remember that these quotes will only provide an approximate idea of repayment terms, as your circumstances will need to be assessed in far greater detail when you come to make a formal application. It is quite possible that the amount you are asked to pay will differ from the initial quote.

If you know you have bad credit, it is useful to have an awareness of the credit scores used by financial institutions. A credit score is a three digit number ranging from 300-850. Credit scores above 720 are considered to be good, whilst those below 600 will be labelled as bad credit. Grades are given in accordance with your credit score ranging from A to E. People with bad credit will tend to be graded C, D or E. Knowing your personal credit score will enable you to ensure your loan is based on the correct score to avoid being charged more for a worse rating.

Unsecured bad credit loans tend to start at a minimum loan amount £500 to as high as £25,000. For very low amounts it is likely that there may be a better form of lending that will have lower repayment structures so it would be sensible to research for the best option for your personal circumstances before opting for a loan. Unsecured loans tend to have fixed rates of interest which helps the borrower manage their repayments better as there is no likelihood of the payments increasing over the term of the loan as interest rates go up. (Of course this will also mean that the repayments will not decrease either if interest rates are reduced any further.) There are no restrictions on what you can use these loans for, such as home improvements, university fees, debt consolidation, holidays, buying a new car or paying for a wedding.

If you have a less than perfect credit history, then being approved for an unsecured loan from a mainstream lender may prove to be difficult, especially in the current economic climate. But a thorough search of the internet and money comparison sites may give some good ideas, although it is a good idea to check that the company from whom you choose to borrow is regulated by the Financial Services Authority (FSA) and that you familiarise yourself with the terms and conditions of any loan before you sign on the dotted lines.

Providing you keep up with all the repayments, an unsecured bad credit loan could help you mend your credit history, since you will have proved that you are no longer a credit risk. This should enable you to apply for more competitive deals in the future.