Doesn’t it seem sometimes that the people who need money the least find it the easiest to get their hands on? The reason some people find it harder than others is because they have a bad credit history and your credit history is important to lenders.
In this article, Loan Broker looks at:
- what is a bad credit history?
- what lenders think about bad credit?
- are guarantor loans for you?
- what bad credit loans are available, and
- when you should use a bad credit loan.
What is a bad credit history?
The easiest way to think of credit history is like a constantly updated report on how you handle your finances. If you always meet your bills on time and in full, you’ll probably have a good credit history. If you’ve missed a few payments in recent times and fallen into arrears on some of your accounts, you’ll probably have a bad credit history.
It’s not just that which goes into your credit history though. Lenders will look at how many loans you have out and for how much, how many credit cards you have and whether those cards are near their limits, and so on.
All of the information on your credit report is then used to produce a credit score.
How do lenders view credit histories?
When you make an application for a loan, the first thing all lenders look at is the information you’ve provided them with like how much money you earn, who you work for, how much you spend and on what, and so on. They’ll then make an estimate of how much spare cash you have left at the end of the month and whether they’re comfortable that you can repay their loan from that spare cash.
If they are, they’ll then apply to a credit reference agency to see your credit history. Most High Street banks and building societies and most online finance companies want to see a good credit history where you’re not in that much debt at the moment and you’re meeting all the repayments on the debt you do have.
If you have a good credit history, there’s a strong chance that a bank or a building society will say “yes” to your application. If you have a poor credit history, there’s a strong chance that a bank or a building society will turn you down, even if you have your current account with them.
So, if you have a bad credit history, will you need someone to guarantee to pay off a loan on your behalf if you can’t pay it back yourself?
To get a loan, will I need a guarantor?
You might have heard of “guarantor loans”. A guarantor loan is when a finance company lends you money but, if you fail to pay it back, your guarantor has to pay it back instead. That’s a lot to ask of anyone and it’s no surprise that many people with bad credit don’t want to use this option.
What bad credit history loans are available to me?
There are certain finance companies that specialize in lending to people with bad credit histories. The best thing is that all of these companies have to abide by strict rules laid down by the Financial Conduct Authority meaning that you’re better protected.
You can apply for a:
- payday loan – take out a loan and pay it back all in one go
- short-term loan – take out a loan and pay it back over two to twelve months
With these bad credit loans, you get the following protections:
- cap on interest rates (no more than 0.8% per day)
- cap on default fees (no more than £15 for missing a payment)
- cap on the overall amount you pay back (interest and charges never more than the loan itself)
LoanBroker, a Financial Conduct Authority-licenced broker, helps bad credit borrowers find the right loan from our panel of Financial Conduct Authority-licenced lenders. More on how we do that below.
When should I use a bad credit loan?
Bad credit loans should only be used to pay emergency bills when you don’t have enough money to pay those bills and when you can’t get the money from anywhere else. Emergency situations are often things like your car breaking down, a problem with your boiler, or funeral expenses.
You should also not take out a bad credit loan from any company which is not registered with the Financial Conduct Authority. Also, please make sure that you can meet all the repayments you need to make on-time and in full without putting yourself at risk of financial hardship.
Compare bad credit loans with LoanBroker
Get in touch with LoanBroker if you’re looking for a loan and you’ve got a less than perfect credit history. We’re not direct lenders, we are a loan broker– and what that means to you is that we do all the negotiating for you directly on your behalf with the lenders themselves. That means the best deals on the cheapest rates for you – no filling in forms on direct lender website after direct lender website.
On our application form, tell us how much you would like to borrow and for how long. We’ll ask you some other questions like who you work for, what you spend each month, how much you earn, how long you’ve been at your current address, and more.
We then send your application off (together with your credit report) to each lender who we think you’ve got the best chance of getting an offer from.
This all takes place in about a minute. Our service is free of charge. You also won’t pay any more using LoanBroker than if you applied directly to the lender who makes you the offer.
To get started, please click here for our form.