Keeping a good credit rating can be difficult for anyone. Any time you miss a payment on any kind of loan or repayment your score is affected. Even those who think they keep up with all of their payments might find their score is lower than expected. A bad credit rating can stick with you for a long time, but can be improved with steady work and conscious effort.
However, that kind of thinking probably won’t help you in the short term. One of the biggest impacts of bad credit is your ability to apply for a loan. Perhaps you’re thinking of buying a house or a new car, but because of your credit rating you’re having difficulty getting accepted. Luckily, there are options out there for people with a low credit score. Here are the main types of bad credit loan that are currently available.
Things to consider
If you’re thinking of applying for a bad credit loan, it’s worth considering these points first:
- Interest rates. Interest will be higher on bad credit loan than on a normal one, and so you will end up paying back more money. If you’re shopping the market, pay attention to interest rates.
- Payment duration. Unlike standard loans, bad credit loans usually have a much longer payment duration. Bare this in mind when applying, and make sure you have the means to commit to repayments.
- Secured or unsecured? Many standard loans require you to put up physical assets as collateral (your house or car for example), whereas many bad credit loans don’t. This will likely mean you can’t borrow as much money though.
- You credit rating. Just as with any other kind of loan, failure to keep up with repayments will damage your credit score even more. So again, make sure you can actually keep up with your scheduled payments.
Types of bad credit loan
Guarantor loan
These work on the same principle as old-fashioned loans, in that you elect someone to pay your loan if you default or miss payments. This can be a risky strategy, especially if you plan to get friends or loved ones involved. Hopefully you’ll keep up with payments, but always make sure your guarantor knows what they’re signing up to.
Unsecured personal loan
These are the same as a standard secured loan, except you don’t offer any of your assets as collateral. This makes them a popular choice with non-homeowners, but it usually means you have to pay more interest, and that repayment plans are longer.
Peer-to-peer loan
These work on the premise of borrowing money from individuals instead of banks. This doesn’t mean borrowing some money from a friend, but people involved in financial services. They can be a bit suspect however, and can charge insane interest rates.
Applying for a loan with bad credit can be difficult, however if you’re committed to the repayment plan they can be a great way to build you credit rating back up.
