If you have a bad credit rating borrowing can be more difficult and more expensive. However, you do still have options available to you, it's simply a case of picking the most affordable - we explain how.
Looking to borrow money with a bad credit record can make things a little trickier.
Essentially because you are viewed as being a greater risk to lenders they will charge you a higher interest rate to cover your perceived risk of defaulting. This means that an ordinary purchase can work out much more expensive if you're not careful.
You should compare the total cost (including interest and charges) of each to see which provides the most affordable means of getting the money you need.
Once your credit has been granted you need to make sure that you adhere to any terms set out by your lender to the letter - including making the agreed repayments on time. Fail to do this and you'll be stung with extra interest charges, costly fees and damage your credit rating further.
Here are your options when it comes to borrowing with bad credit.
As most borrowing options available to people with poor credit attract a high interest rate, it makes sense to turn to family and friends if you can.
Providing you have a friend or relative that is willing and able to lend you the funds this is likely to be a much cheaper means of getting the cash you need.
It's a good idea to set out repayment terms up front, agreeing both the amount you'll borrow, the interest rate you'll pay (if any) and the date you'll need to repay them by. Putting this on paper will make you both feel more comfortable with the arrangement.
Read our article: Lending to Friends: How to Make Sure You Get Your Money Back for more information on points both you, and they should consider.
Although a Bad Credit credit card usually applies a higher interest rate than most standard credit cards and is unlikely to offer a 0% introductory offer on purchases, if you are able to repay the balance in full each month you can borrow for short periods interest free.
However, if you are going to need to extend the term of your borrowing over several months then you will be charged the higher interest rate making bad credit credit cards a less attractive option.
You are also likely to be restricted to a modest credit limit when you apply for a bad credit credit card, so if you need to borrow a substantial sum you may not be given a sufficient limit.
Read our article How to Compare Credit Cards for Bad Credit to find out more.
Many lenders now offer personal loans to people with an impaired credit record.
These bad credit loans are likely to be more expensive than a standard unsecured loan, however their main benefit is that you will know exactly what you have to pay each month and how long you’ll be in debt.
This can be very important for managing your money and make a poor credit loan a more attractive choice especially if you have had problems managing your debts in the past.
You can compare the different poor credit loans to find a loan with the lowest interest rate using our Bad Credit loans comparison table.
Needless to say you should check that you meet the eligibility criteria before you apply, opt for the loan with the lowest interest rate and arrange it over the shortest period you can afford to minimise interest charges.
Social lending is worth looking into if you're looking to borrow with bad credit as it may provide a more affordable and flexible means of getting the money you need.
Social lending sites provide an alternative to bank loans that could work out cheaper as you're borrowing from other people.
Read our article: Social Lending - Is It Worth the Risk? to find out more and use our Social Lending Sites comparison for more information on the options available.
If you want to keep your costs down and are confident that you can afford the repayments each month, regardless of changes to your circumstances, you could look for a secured loan.
However, the main disadvantage to a secured loan is that it is set against the value of one of your assets, typically your property, although other items such as a car or jewellery can also be used. For this reason most are only available to homeowners.
Although they may be more accessible to people with poor credit they do tend to work out more expensive in the long run as your borrowing will be spread over a longer period. This means you'll pay more in interest overall, irrespective of the interest rate.
Before you consider a secured loan you need to consider if you are comfortable putting your property or belongings at risk.
If you can afford not to, then you should avoid it – especially if the loan will be secured on your home.
Read our article: The Battle of the Loans for more information.
Before you apply for any financial product it’s worth checking your credit record to make sure that everything is as it should be.
It may be the case that your financial situation isn’t as bad as you think, or there are amendments that you can make to better your standing in the eyes of lenders.
If you have time there are a number of other things you can do to improve your credit rating and make it more likely that you’ll get approved for some of the more attractive financial products on the market.
You can use our Action Plan How to Improve Your Credit Rating to find out how.
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