If a person has a history of missing repayment on credit cards or loans, it would be considered a bad credit score. Getting a loan with a bad credit score is difficult yet challenging. Because lenders often check your credit score, financial circumstances and assess whether you can afford the loan you are applying for. A bad credit loan is offered to those who have trouble getting credit due to poor credit history.
So, even if you have a bad credit score or have a history of repayments, you can get a loan from them. Many lenders are specialized in helping people get loans with a bad credit score in the UK. Hence, even if a mainstream lender turns you down, you can still get a loan from bad credit loans. You only need to show the lender that you can afford the loan and have a good income.
With bad credit loans, the lender is at higher risk of whether the borrower will repay the loan.
But these loans have a higher interest rate and more significant restriction as compared to others. Lenders score your application differently, setting their criteria; these loans are highly beneficial if managed correctly.
Risks of Bad Credit Loans:
The worst risk of a bad credit loan is that lenders charge you a higher interest rate, so the total repayment for a loan increased compared to mainstream lenders. Or if you borrow a secured loan with bad credit and miss your repayments, the lender has the authority to seize your collaterals such as your home, car, or anything else.
But if you repay your loans within the time, it will help you build a better credit score. As a result, if you need a credit or loan in the future, you will get low-interest rates. So, a bad credit loan helps you to improve your credit score as well as open the path for borrowing in the future.
There are different types of bad credit loan in the market that offer loan with bad credit scores, such as;
Guarantors Loans – is a type of bad credit loan in which you need a guarantor (i.e., a family member, friend, or relative) to co-sign the agreement. They formally give the guarantee to repay the loan in any case you miss. However, if any default occurs, it will affect the guarantor’s credit score or put his finance at risk.
Payday loans – often known as predatory loans, specifically designed for people with bad credit or no credit score. They provide short-time loans with daily repayment. Most people borrow such loans for a short time solution, such as getting a job or bank account.
OppLoans – offer loans with a minimum credit score, but they consider several other factors such as your bank data and information from alternate credit bureaus. So if you keep up with your repayments, opp loans, send your repayment history to these bureaus and help to improve your credit score.
Doorstep loans – also known as home credit personal loans. This type of loan involved a lender whose agent comes to your doorstep and ensures a small loan, affordable for your circumstances.
Thus, if you hold a bad credit score, you can still get a loan and improve your credit score. But keep in mind different lenders have different requirements for it.