Online lenders may not be as strict as banks, but they also pay heed to a bad credit rating while deciding the interest rates to charge. Your credit history reflects your payment behaviour and commitment towards debts you have taken on. Lenient lending terms and conditions do not mean that a lender is giving away money out of charity.
A lender will not take the risk of loaning you when you are highly likely to make a default. Although a bad credit rating is perceived as irresponsible borrowing habits, there are chances you fall into the category of subprime borrowers,
More than 30% of the borrowers fail to clear their dues on time due to some unavoidable circ*mstances. Bearing this factor in mind, most of the lenders do not refuse to entertain applications from subprime borrowers.
However, you will have to figure out what kind of loan is suitable in the given circ*mstances and whether a lender you are applying to is comfortable giving that much money. Every lender has their own policy, so before applying for a loan with a bad credit rating, you should check if you meet their criteria.
Types of debts you can consider with a bad credit rating
It is vital to note that you should behave as a sensible borrower when your credit report already highlights the dark side of your financial life. You should try to borrow money that you think you can afford to pay back on time. Borrowing a larger debt will increase your chances of being turned down. Here are the types of debts that you can apply for despite your bad credit rating:
- Guarantor loans
If you are to borrow a larger sum, you should take out a guarantor loan. A guarantor loan is less risky as a guarantor will be responsible for the payment of the debt in case you abdicate your responsibility of clearing the dues.
Only in a good credit record is a person acknowledged as a guarantor. The guarantor must have a good credit score, and it can be anyone, including your significant other. However, the guarantor’s credit score will also be affected when you refuse to pay off the debt. Therefore, convincing somebody to act as a guarantor is not duck soup.
- Secured loans
Secured loans are the best alternative to guarantor loans when you need a more significant sum. You do not need a third person to enter into a contract along with you. You will instead need to put down your assets as collateral.
As your lender has a scope to take back your asset in case of a default, chances for better interest rates are higher.
- Payday loans
Secured loans and guarantor loans are not required if you need a small sum of money. Emergencies can crop up at any time, and if you need money now in the UK, small emergency loans like payday loans will come in handy.
These loans are the perfect choice when your credit score is bad, as your lender will not run a hard credit check, so you can get money as fast as possible without losing your credit points. Interest rates will undoubtedly be very high.
As the size of these loans is not big enough, the whole debt will be paid off once and for all. The repayment term is not more than 15 days. However, there are a few payday lenders that sign off on your application without any credit check at all.
These lenders can be scammers, so beware of them. Those who do not run a hard credit check prefer running a soft credit check. You will not lose your credit points, and you will not get trapped in an endless circle of debt.
- Unemployed loans
Unemployed loans are exclusively designed for those who are out of work or jobless. You might be wondering how it is possible to get the nod for a loan when you do not have a job. Well, having no full-time job does not signify having no income at all.
You may be able to borrow money based on your unemployment benefits and income from your side gig. If you do not have any passive income sources, you can simply hinge on your unemployment benefits, and therefore, these loans are called benefit loans. Benefit money loans from a direct lender are also very small in size, so you will be required to pay them in full.
- Doorstep loans
Doorstep loans are similar to small cash loans. The only difference is that you will get money on your doorstep. You can choose the doorstep service for receiving and paying money.
These loans can be even more expensive than payday loans as the fees for doorstep service are also added. If you opt for an instalment plan, the money will be collected in weekly instalments.
Whether you get a payday loan or a doorstep loan, the maximum amount will not be more than £1,000. Most of the time, lenders cap on £700 so you do not fall into debt. A lump sum payment can make it difficult for you to clear the debt.
- Instalment loans
There are situations when you may need money to fund bigger needs like weddings, vacations and a gadget. Of course, these needs cannot be funded with payday loans. Therefore, lenders provide instalment loans to subprime borrowers as well.
The repayment term of these loans could be longer, like 3, 6, 9, or 12 months, depending on the borrowing sum. If you make all payments on time, this will boost your credit score as well.
The bottom line
If your credit rating is bad, you still have a couple of borrowing options, such as payday loans, instalment loans, doorstep loans, secured loans and guarantor loans. Whatever the loan you apply for, make sure that you know their impact on your credit score and financial condition.
Jessica William
Jessica William operates as a Senior Consultant and Chief Content Editor for 10 years at 1Onefinance. She assists the firm in getting a grip on the new lending laws and regulations. She does so by researching the trends, consumer requirements, and new audience preferences. Jessica is responsible for making important financial and administrative decisions.
Apart from helping consumers with the best solutions, Jessica Williams helps them ensure financial stability. She analyse the business data, finances, expenses, and revenue/ income of customers and determines necessary changes. Jessica finished her Doctorate in finance and law and implements her knowledge to the best interest of the firm and customers.
