When you’re applying for an unsecured loan especially if you have a poor credit rating, it is very easy to feel confused and somewhat overwhelmed. There can be numerous forms to fill in, phone calls to make and the criteria can be different depending on which lending company you use.
Despite all that, unsecured loans for those with a poorer credit rating or ‘bad credit’ are becoming increasingly more popular and available. The fundamental difference between bad credit loans and good credit loans, are the terms on which it is offered, the APR and the likelihood of being accepted in the first place.
So what things should you bear in mind when looking for bad credit loan?
Firstly decide if you want a secured or unsecured loan. A secured loan is generally only available to those with a mortgage or property. With a secured loan you can usually borrow a larger amount, but your home is used as the security and should you fail to keep up repayments, then the lender can repossess your house. An unsecured loan or personal loan is taken out without any security required, but it very much depends on how good your credit rating is.
Secondly, make sure that you check if the application process will only leave ‘soft searches’ on your credit file. Continually applying for credit at the same time can have a negative impact upon your credit file. Lenders assume that you are desperate, or expecting a period of financial instability, so you are classed as a higher risk. However soft searches are still noted on your credit file but lenders cannot see them as they do not impact upon your credit score.
Always, always check the APR (Annual Percentage Rate). The APR is the figure that determines the level of interest, charges and fees that you are paying back. The financial regulator, the Financial Conduct Authority, determine the APR as “APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR takes into account not just the interest on the loan but also other charges you have to pay, for example, any arrangement fee. All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender.”
Thus it is very important to understand and compare the APR on any loans that you may be offered. Generally the higher the APR, the more you will be paying back overall. However, as lenders only have to offer 51% of their customers the advertised ‘typical’ or ‘representative’ APR, the rates may vastly differ. So make sure you know what APR you are repaying and why.
If you are still having no luck because of your credit score, it may be worth considering a guarantor loan. A guarantor loan is when you get somebody you trust to ‘guarantee’ that the repayments will always be met. Thus if you fail to repay, then they will have to. It helps repair and improve your credit score, as it proves to the lender that you can keep to repayments. The lender now has in effect, two levels of security, you and your guarantor, so usually the rates are much better than if you were applying alone with a poor credit score. Often lenders, who wouldn’t consider you before, are then willing to consider your application. As with any unsecured loan however, always make sure that you can keep up repayments and that they are realistic and affordable.
This article is intended to provide information only, and does not constitute financial advice or assistance, without limitation, warranties as to satisfactory quality, fitness for purpose, accuracy or skill. The information contained in this article is generic and non-specific to your own individual circumstances or anyone else.