We explain how bad credit loans work, who they're suitable for and why they might be right for you.
Bad credit loans are designed to offer flexible borrowing opportunities to those who have previously been turned down for credit due to CCJs, arrears or simply having a poor credit history due to missed or late payments.
As loan providers see lending to those with a poor credit history as a potentially risky investment, the majority only offer secured loans. This is where the amount borrowed is secured on the applicant's property, meaning that often bad credit loans are only available to homeowners. Lenders prefer secured loans as they effectively provide protection for their investment as if the borrower does not meet loan repayments over an extended period, they have the ability to repossess the property and reclaim their funds.
When you apply for a bad credit loan, lenders will check your credit score to determine whether they will lend to you as well as the interest rate they will offer. The interest rates offered to those with a poor credit history do tend to be significantly higher than those advertised on the high street; again this is the lenders protecting their investment. However, the actual interest rate offered to each individual depends on the amount borrowed (with larger amounts tending to attract lower interest rates) as well as the personal circumstances of the applicant.
Most bad credit loans are provided by brokers who have access to many loan plans enabling them to find the lowest rate that fits your personal circumstances. Those with a better credit history are likely to be eligible for a lower interest rate than those with a poor credit history as statistically they are more likely to meet repayments throughout the loan term. However, when looking to take out a bad credit loan, regardless of your financial circumstances it is important to be mindful of lenders charging very high interest rates.
The majority of bad credit lenders place little restriction on what the borrowed funds can be used for so whether you want to consolidate your existing commitments into a more manageable monthly amount or buy a new car, you should be able to do so. Additionally, some lenders offer features such as optional repayment holidays and low or no early repayment charges.
By comparing quotes from several different bad credit loan providers you should be able to find a loan plan that is right for you.
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