If you have struggled to obtain loans or other financial products in the past, you may have already discovered that bad credit was to blame.
Unfortunately, if you have a less than perfect credit history, this can really impact your ability to secure a range of finance options when needed, including loans.
In this post, we will explore what a credit score is, what bad credit loans are, the common hurdles to securing a loan without a glowing credit history and the considerations that should be made before taking out a loan for those with a bad credit history.
What is a Credit Score?
A credit score is an industry-wide recognised system that assesses how creditworthy an applicant is.
A person’s score is represented as a number often between 300-999 and is calculated by reviewing an individual’s credit history including the following:
- Details of open accounts.
- Records of payment history on current and previous accounts.
- Any information regarding Individual Voluntary Arrangements (IVAs) or bankruptcies.
- Details of any financially related links such as previous partners.
The higher a person’s credit score, the more desirable and trustworthy that individual is as a potential customer to a lender. The score enables lenders to preview potential customers track records in order to decide if they fit their lending criteria.
Should you be concerned or interested in your credit score and the details that sit behind the score itself, a free credit report can be obtained from a number of websites.
The information is usually obtained from the UK’s three main credit reference agencies, and it is always recommended that credit reports are obtained regularly to check the accuracy of the information held.
- Getting a mortgage with bad credit.
- Remortgages for debt consolidation.
- Mortgage application declined.
- Mortgage after repossession.
- Very bad credit loans direct lenders.
What is deemed a Bad Credit Score?
Unfortunately, there is not a uniform method of setting a score and therefore the major credit reference agencies use a slightly different calculation method to come to their scores. As such, there is not a specific score that is deemed good or bad.
What are Bad Credit Loans?
Loans for those with bad credit a method of funding a large purchase or obtaining a cash lump sum that is repaid monthly during the term of the loan, however depending upon the client’s credit score, this may limit the lenders that will be prepared to offer loans.
Also, it is likely that the interest rate offered on the loan will be higher than the rate that could be offered to those with a good credit score.
If someone with a very bad credit history is seeking a loan, there are other options that may increase the likelihood of a loan being accepted such as:
- Secured loans
A type of loan that enables the additional risks of lending to those with a bad credit history, to be offset by offering an asset as collateral. The lender would have the power to repossess the asset in the event that the loan re-payments have defaulted.
- Guarantor loans
Another option for those with a bad credit history could be to obtain a guarantor loan where a family member or close friend formally agrees to take on the repayments in the event of a default by the applicant.
What are Loan Direct Lenders?
There is a range of lenders on the market who may be prepared to lend money such as banks, building societies plus a range of other lenders. Sometimes there are brokers who may act as the middleman, managing the application process, whereas direct lenders do not involve brokers and applicants would need to apply directly to be considered for their services.
The main advantage of using a direct lender is that the process is undertaken all by one company and therefore can be simplified as no other contacts are involved, however, there can also be less transparency when using direct lenders, as for example, the underwriting process is not visible externally and you may not be getting the best rate for your needs and circumstances.
There is a wide range of direct lenders that may consider lending to those with bad credit, including quite a few that specifically market their financial products to those with a bad credit score.
When reviewing the companies offering such products it is important to ensure that a short-listed company is reputable and regulated. Also, be aware that the interest rates offered are likely to be higher in comparison to those on the wider market intended for applicants with a good credit score.
Need more help? Check out our quick help guides:
- Can you get a mortgage with a CCJ?
- How much deposit do you need for a bad credit mortgage?
- Can I get a mortgage with bankruptcy?
- Payday loan mortgages.
- Bad credit commercial mortgages.
Very Bad Credit Loans Direct Lenders Considerations
Some lenders may offer a ‘soft search’ which could indicate whether or not a potential applicant would be accepted for a loan. This is a great tool that won’t harm a person’s score when browsing to see what is available, however even if approved via the soft search, there are still a range of factors that should be considered before proceeding as follows:
- Affordability and likelihood of defaulting
The applicant should ensure that they can afford the loan repayments before committing to a loan as any defaults would severely impact their bad credit score even further. In addition, as already discussed the interest rates are likely to be high and therefore the overall cost of borrowing will all add up.
- Credit limits
Often, lenders willing to offer loans to those with bad credit are already taking risks and therefore may limit the amount of credit limit or loan value offered.
- Credit score
As mentioned, a person’s credit score will be a factor as to whether or not a lender will be prepared to offer a loan and the terms of the loan. Any steps that can be taken to improve a credit score ahead of a loan application will improve the chances of being approved and may decrease the interest rate offered.
Very Bad Credit Loans Direct Lenders Summary
In this post, we have discussed what bad credit loans are and the impact that a credit score has on the financial options for a potential applicant. We have also discussed a number of considerations that should be reviewed before proceeding with a loan.
Should you wish to discuss the financial solutions available to you and your personal circumstances, please get in touch with our friendly team.
Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.