The term ‘bad credit loan’ refers to a variety of different loans which are targeted at borrowers who will be rendered ineligible for standard personal loans due to their credit rating.
Typically, these loans can prove to be particularly expensive compared to their standard counterparts and therefore it is essential that you find out all of the information that you can before considering applying for one.
When Is The Right Time To Apply For One?
If you need access to more than £1000 and have been rejected by your bank or building society, a bad credit loan may offer the most attainable option.
However, if you wish to explore these options it is important to do your research and then manage it well. By doing this, you will be able to take many of the steps that you need to improve your credit rating so that you will be able to access cheaper financial options in the future.
Types of Bad Credit Loans
As mentioned above, there are a variety of different bad credit loans available, all of which have distinct differences.
Below, we have identified some of the most popular:
• Payday Loans: This type of loan is by far the most widely publicised and should always be approached with caution. Designed to offer a quick fix (essentially to tide you over until your next payday), the APR associated with a payday loan can be exceptionally high. Only available in relatively small amounts of up to approximately £500, full repayment as scheduled will ensure that the costs do not get too high but failure to repay can result in significant costs being incurred.
• Guarantor Loans: This type of loan works in a very similar way to a standard personal loan, except the loan agreement involves a third party guarantor who will be expected to make the repayments if you are unable to do so. These are by far the lowest risk and most attainable of all bad credit loans. If you would like to know where to find out more information, please click on the following link – where I can get a guarantor loan?
• Secured Loans: These are the cheapest option available to ‘bad credit borrowers’ but are associated with a significant risk due to the fact that you will be expected to secure your home against the balance of the loan. Although this will ensure that you are able to borrow a large sum of money, failure to repay the loan will result in repossession of your property.
• Logbook Loans: Similar to the secured loans above, although far more expensive, logbook loans work by using the borrower’s vehicle as security against the balance of the loan. Failure to make the repayments will result in the lender taking away your car.
Using a Bad Credit Loan to Consolidate Debts
Are you looking to consolidate your outstanding debts? Instead of trying to manage multiple repayments on credit and store cards, loans and overdrafts, which may be all on different rates and paid out at different times of the month, a guarantor loan can offer the perfect way to repay them all, leaving you with one easy to manage payment.
However, it is essential that find a loan offering you a lower interest rate than you are currently paying with your other debts, otherwise your overall costs may increase.
What Are The Pros and Cons?
Bad credit loans will be perfect if:
• You have a poor credit history and need to borrow a significant sum of money.
• You need the money quickly for an essential purchase.
• You can afford the monthly repayments.
But always remember:
• That the associated interest rates can be VERY high.
• They should only be used in the case of an emergency.
• You should only ever apply for the minimum amount that you need.
For more information on secured loans – http://en.wikipedia.org/wiki/Secured_loan
For more information on logbook loans – http://www.theguardian.com/money/2009/dec/22/logbook-loans-outlawed
For more information of payday loans – http://www.bbc.co.uk/news/business-16067283