You may not spend a lot of time thinking about your credit score but if you have a bad credit rating, you may find that it is difficult to obtain what you are looking for in life. Credit is an integral part in modern life but if you have misused credit in the past or you have made bad financial decisions, you’ll find that your ability to obtain credit in the future becomes very difficult.
If you have a bad credit score and you are looking to obtain credit, you need to accept that many lenders or businesses will not provide you with what you are looking for. You need to look for bad credit options, and thankfully, there are options available to you.
Advantages of Bad Credit Loans
The obvious advantage of a bad credit loan is that it is a loan aimed specifically at people who may not get a loan in another way. Banks and traditional lenders are clamping down on the amount of loans that they provide and the first way that banks evaluate whether someone is suitable for a loan relates to their credit score. You may have the funds to pay off a loan now but if your credit score is poor, perhaps caused by actions in the past, you will struggle to obtain the funding that you need.
Types of Bad Credit Loans
When it comes to bad credit loans, you will often find that the options available to you come under secured or unsecured loans.
Secured loans are where the borrower pledges an asset or property as collateral to the lender in order to receive the loan. The presence of this collateral allows the lender the confidence to provide the loan at an affordable rate of APR. An example of a secured loan available to people with bad credit would be a logbook loan. This is a loan where the applicant places their car as collateral to the lender. This allows for a lower level of interest to be applied to the loan but if the borrower fails to make payments, the lender can take the car.
Unsecured loans are where there is no security or asset being placed as collateral for the loan, and even if the borrower fails to make payments, the lender is unable to claim any of the property owned by the borrower. The absence of any collateral means that the lender is looking to place a higher rate of APR on to the loan. Examples of unsecured guarantor loans include payday loans and guarantor loans.
Given that the secured loan comes with a more affordable rate of APR, you would assume that they are the most attractive or positive loans, but this isn’t the case. This is because the risk of losing a home or car is a very real and major risk, something which many people would prefer to avoid. There is also the fact that many people with bad credit do not have a car or a home that they can offer as collateral. This means that the only option left for many people is an unsecured loan, and this means that many people are left with the prospect of paying a higher degree of interest for their loan.
A guarantor loan is a viable option
One exception to this rule comes with a guarantor loan. A guarantor loan is an unsecured loan but the presence of the guarantor helps to lower the associated APR. While the borrower has a bad credit rating, the guarantor is expected to have a positive credit score. The positive credit score of the guarantor is the factor that allows the lender to provide a loan at a more affordable rate of interest.
If you find someone that is willing to act as a guarantor for you, you should find that paying off the loan is a simpler process. Acting as a guarantor is a big responsibility, so it is important that you go over the details of the loan, and your finances, with the guarantor. Many people will feel unsure or uncertain about talking about their finances but given that a great deal of responsibility is being placed on to the guarantor, you need to provide them with as much information as is required.
Andrew Reilly is a freelance writer with a focus on news stories and consumer interest articles. He has been writing professionally for 9 years but has been writing for as long as he can care to remember. When Andrew isn’t sat behind a laptop or researching a story, he will be found watching a gig or a game of football.