If you have a low credit score, you may already have been refused for a loan or finance. If you’re struggling to get approved by a lender, it is most commonly due to a low credit score and your previous financial behaviour. When you’re in this position but are desperate for a loan, you may be considering a bad credit loan to help get you on your way. The stigma associated with bad credit loans is whether they’re actually beneficial to customers or not. In order to make an informed decision, you must first look at what they are, how they work and the pros and cons of low credit loans.
What is bad credit?
A bad credit score is based on your financial behaviour and how you’ve handled your credit in the past. Your credit score is calculated based on your past history of borrowing and make predictions about which type of borrower you will be in the future. If you’ve missed payments in the past, have high levels of debt, have defaults on your credit report or you’ve been declared bankrupt, you may find yourself with a low score. In order to recover from a bad credit score, you will need to create new financial habits and handle your credit responsibly. However, depending on the reason for your low credit score, it can take a considerable amount of time to regain control of your credit score.
What are bad credit loans?
Bad credit loans are often offered by specialist lenders who help people who are struggling to get approved to get an affordable loan. For example, buying a car with a bad credit loan can be a good way to get a car when you’re struggling. Before you enter into a finance agreement for bad credit, you should always check out the lender or company reviews first as some businesses may be looking to exploit customers by offering sky high interest rates. Bad credit loans can be used to get your foot in the door with lenders and when you make your payments on time and in full to increase your credit score, you could then refinance halfway through to a better agreement once your circumstances have improved. Bad credit loans may see a higher interest rate offered to help secure the loan or you may be required to put down a deposit to help reduce the loan amount.
Can you get a loan with bad credit?
Reputable finance lenders want to make finance as accessible as they can for drivers. Its worth remembering that guaranteed finance for a car isn’t a thing and finance can’t be offered to each and every applicant. Lenders do put their own criteria in place to prevent lending to anyone who can’t afford to pay it back. It can be possible to get a loan with bad credit as long as you meet the eligibility criteria first. If you can prove you can afford the repayments with a secure and constant income and don’t have any limitations in place as to whether you can get finance or not, such as bankruptcy, there can be credit options available to you. It can be worth getting a soft search eligibility check done first with a specialist lender to help protect your credit score and see the likelihood of you being approved.
Is it a good idea to get a bad credit loan?
When deciding if a bad credit loan is right for you, you will first need to consider your personal circumstances. It’s no secret that bad credit loans may not be the most cost-effective way to get a loan. The lowest interest rates are offered to customers who have a good history of making payments on time as they are less of a risk to lend to. Before entering into any sort of loan or finance, you need to be sure you can afford to pay it back. Loans can last a number of years and failing to stick to the terms of the agreement can have a detrimental effect on your ability to borrow in the future. If you also have high levels of debt already, it can be holding your credit score back due to the debt-to-income ratio. It can be a good idea to reduce any debt you have first before trying to take on anymore.
