Thinking About Loans for Bad Credit?
If your credit history isn’t in the best shape but you need to borrow some money, you may find that secured loans are a decent option.
It’s hardly surprising that bank and building society loans for bad credit tend to come with a steeper rate of interest if you have a low credit score. This is simply because the lender needs to safeguard against the obvious risks of lending to an borrower with a history of financial problems.
That being said, if you are considering securing your loan against your property, you may be able to get a far more reasonable rate of interest, because the lender will be able to lend with greater confidence in the knowledge that they will get their money back via the sale of your property should you default on the loan.
If you are shopping around for a bad credit loan, using your home as collateral lessens the risk to the lender, meaning that they can offer you a far more competitive rate.
Whether you are hoping to consolidate your debts or buy a big ticket item such as a car, secured loans could be one of the only options open to you if you do have a low or non-existent credit score.
In order to ensure you get the very best deal available to you, you will need to carefully work out a budget and also establish your financial priorities before you approach a lender.
Firstly, think about how much you realistically need to borrow and what exactly you intend to spend it on. You should always aim to borrow the very smallest sum possible; that being said, if you are borrowing to repay debt, you may want to add a small amount as a ‘contingency’ fund.
Once you have worked out a realistic budget, compare it to the providers' minimum and maximum loan caps so that you can start to pull together a list of lenders who best fit your particular needs.
Generally speaking, you will only be eligible to borrow up to the same figure as the equity you have in your property (i.e. the percentage of it that you already own). If you currently have any other loans outstanding, you’ll need to factor these in too.
When it comes to settling on a repayment term, there are several factors to take into consideration. The majority of lenders offer terms of between three and thirty years. Most lenders will negotiate a term with you if you have needs outside their particular parameters.
Consider carefully how much you can actually afford to set aside for loan repayments every month, and then calculate how long the term would need to be based on your calculations. You will then be able to compare products offered by lenders to see which is the best match.
Lastly, it is worth noting that some lenders will consider letting you use another high-value asset (such as a car) to secure your loan. This is very much lender-specific, though, so always check well ahead of making an application.