Bad Credit Loans

What You Need to Know about Bad Credit Loans

As a consumer, your credit score is your most valuable financial asset. It is a record of your personal fiscal performance and the lever on which your future financial power pivots. A strong credit history gives you power, making it easier to qualify for the credit you need to make large purchases and important life decisions. A poor credit history limits your buying power and restricts your financial flexibility.

It’s estimated that nearly 20 million UK residents have poor or bad credit histories. Not everyone in that heady statistic got there through poor money management. For many people, it was simply a series of unfortunate financial setbacks. Still, others are struggling with a bad credit rating simply because they have little or no credit history to call upon.

But a poor credit rating, regardless of the cause, doesn’t have to stop you from getting accepted for the loan you need, when you need it. So called ‘bad credit loans’ provide short-term financing to consumers with troubled credit histories. These loans can help you successfully deal with life’s unexpected spending emergencies while also giving you a tool to rebuild that all important credit rating.

What Causes Bad Credit?

It’s worth noting here that there is some distinction between having a bad credit history and having no credit history at all. For younger consumers especially a lack of credit history can be an impediment to securing a loan. Essentially, it takes credit to get credit. If you have no real credit history for lenders to reference you’ll likely be considered a high risk customer. This is not only true for young consumers but also for new UK residents. Credit ratings do not cross borders, and new arrivals to the United Kingdom have to build a new credit history from scratch.

A bad credit rating is typically the result of a variety of factors. The most common causes of a poor credit score include:

• Late or missed payments on a loan, credit card or mortgage.
• Carrying higher than average levels of debt.
• Exceeding an existing credit limit.
• Defaulting on a previous loan.
• A history of County Court Judgements, Defaults or Bankruptcy.

Even something as simple as not appearing on the electoral roll can adversely impact your credit rating. Outdated and inaccurate information can also cause your credit score to drop, which is why it is always a good idea to monitor your rating for mistakes and inaccuracies. Correcting misinformation on your credit report can help to improve both your score and your borrowing power.

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Representative Example: Rates from 48.1% APR to 1721% APR. The minimum Loan Term is 1 month. The maximum Loan Term is 36 months. Representative Example: £1,000 borrowed for 18 months. Monthly Repayment of £89.22. The total amount repayable is £1605.96. Interest amounts to £605.96, an annual interest rate of 59.97% (fixed). Representative APR: 79.5% (variable).

What are Bad Credit Loans?

Bad credit loans are a specific type of lending product designed to address the needs of consumers with adverse credit histories. These are small-sum short-term loans that feature brief and highly structured repayment periods.

Short-term bad credit loans include payday loans designed to be repaid in a matter of weeks as well as small personal loans with repayment periods that stretch to several months. These lending products pick up where conventional lending leaves off and help to provide the kind of financial power and flexibility often denied to consumers with troubled credit histories.

What Types of Bad Credit Loans are Available?

Short-term loans for bad credit borrowers tend to fall into one of the following categories:

• Secured Loans – These are perhaps the most common option for bad credit loans. With an instant secured loan the borrower offers a personal asset, usually a home or car, as security against the total loan amount. In the event, the borrower defaults on the loan the lender can seize the assets to cover the loss. Secured loans can be easier to obtain as the collateral you put forward reduces the perceived risk to the lender. It can also result in lower interest rates, helping to keep your loan more affordable. However, the risks associated with secured loans should not be ignored. Should you default on your loan the lender has the right to take possession of the assets you have pledged as collateral.
• Guarantor Loans – Guarantor loans are designed for borrowers with especially bad credit ratings. While they do not require a borrower to pledge any assets to secure the loan they do require the customer to engage a guarantor or co-signer. This is usually a family member or close friend. The co-signer, or guarantor, promises to assume liability for the loan should the borrower default. Guarantor loans carry risk to both the lender and the co-signer and typically come with higher interest rates to offset that risk.
• Personal Loans – Personal loans are sometimes available to consumers with less than perfect credit. However, there are typically strict limits on how much can be borrowed. You should also expect bad credit personal loans to come with much higher interest rates as well as additional fees and charges. Because there is no collateral involved, and no co-signer to guarantee the loan, the perceived risk is higher.
• Debt Consolidation Loans – Unlike other bad credit short-term loans debt consolidation loans are designed for a specific use. Namely, combining your current debts to make them more manageable. The idea is to consolidate your debts leaving you with a single, more manageable, monthly payment.

Debt consolidation can be a powerful tool in restructuring your finances and taking control of your fiscal future. However, using a consolidation loan will increase the total cost of all of your outstanding debts. It can be a good option for certain borrowers who want quick cash, but it does come at a price.

Are Bad Credit Loans an Affordable Option?

Unfortunately, borrowers with bad credit scores are considered to be high risk customers. Lenders will want to mitigate their risk as much as possible. That means that most bad credit lenders will ofter require more interest to be paid than you’d typically see from a personal loan from a high street bank.

Short-term bad credit loans typically feature higher than average interest rates. Especially when compared to unsecured loans offered to borrowers with strong credit scores. Bad credit loans also tend to have more restrictive repayment terms than more conventional lending products.

That being said, bad credit loans fill an important need in the UK financial landscape. They provide much-needed opportunities for borrowers with poor credit, allowing them to access the funds they need to handle their everyday (and not so everyday) expenses.

Bad credit loans also provide an even greater advantage for consumers. They give people with bad credit the opportunity to rebuild their credit rating from the ground up. With each on-time payment and every loan term you successfully complete, your credit score goes up.

How Difficult is it to Apply for a Bad Credit Loan?

At Pounds to Pocket we are dedicated to matching borrowers with the right loan to suit their budget and their personal financial situation. We endeavour to make the application process as quick, easy, and painless as possible.

In order to process your loan application we will need to collect some specific information. We will need to know the amount of money you wish to borrow, as well as your current income and current financial obligations. All information must be correct and accurate to be considered for a loan.

Eligible applicants must meet the following basic criteria:

• Must be at least 18 years of age.
• Must be a legal UK resident.
• Must have regular income from employment or benefits.
• Must provide valid contact information (e-mail, telephone and current address).
• Must have a UK current account.

Loan requests are processed in real-time and applicants should expect to receive an immediate on-screen decision shortly after submitting their application. You can then decide whether or not to accept the loan term you’ve been approved for or cancel the application. You are under no obligation to take out the loan.

Finally, all loans carry some degree of risk. Before applying for any bad credit lending product be sure that you understand your responsibilities as a borrower. If you are approved for a loan take the time to review the terms and conditions of that loan. Defaulting on any loan will not only adversely impact your credit rating it will also make it more difficult to secure a loan in the future.