If you’re tight in cash and you need a personal loan quick, there are a number of personal loan options available. You may have a hard time getting approved for one, however, if you have a poor credit rating. If you ever missed payments on your credit cards, mortgage or loans before, these records can go to your credit file and can drastically affect your credit score. In turn, your credit score can dramatically affect your chances for loan approval.
Bad Credit Loan Options
What do you do when you can’t get a loan because of bad credit? There are several quick cash loans you can consider. Below are some of these loans:
Payday loans are very popular but also highly controversial in the UK. The financial product offers the promise of quick cash but at a cost. You can borrow anywhere from £100 to £1,000 at a whopping average representative APR of 1,000%.
Financial experts have been slamming payday loan lenders for their unfair terms that basically put borrowers with little to no options in a very difficult situation. Despite the warnings, more and more borrowers resort to the product for quick cash solutions to immediate financial problems.
If you’re looking for something more affordable, guarantor loans got you covered. The financial product is significantly cheaper because there is one key factor that reduces the risks on the lender’s end. It’s the guarantor requirement. If you have bad credit and you want to avail a guarantor loan, all you need to do is find a qualified guarantor to co-sign the debt agreement with you. A qualified guarantor is someone with good credit and is a UK resident. He or she should also agree to cover the liabilities in your behalf in the event that you are unable to repay the loan.
Another option that offers larger loan amounts and longer repayment terms is logbook loan. The loan is secured against your car hence the larger loan amounts. The average APR for logbook loans is 400%, which is also quite expensive compared to guarantor loans at 50% Rep APR. But the biggest disadvantage for logbook loans is the risk of repossession. Because your vehicle is used as collateral, you can lose your car to your lender if you cannot meet the monthly repayments. The lender will eventually sell it to cover for your outstanding balance.
What We Recommended
While payday, guarantor and logbook loans are quite easy to avail especially if you have bad credit to worry about, the loans are only temporary financial solutions. If you don’t want to get stuck with high interest rates and limited loan options, you should aim to improve your credit score for long-term benefits. Boosting your score can take time and a lot of effort but know that it has its benefits.
One way you can start building your credit score is to apply for a bad credit credit card. That advice may seem counterintuitive but there’s really a good reason why it makes sense. If you apply for a credit card, that goes to your file. If you commit to keep the card’s balance at 30% or below its credit limit, that’s a spending habit credit agencies will consider responsible. If you pay your credit card bill on or before its due date every month, that’s another good record that goes into your credit file. If you keep doing these habits month after month, it’s only a matter of time until you see significant improvements on your credit score.