A bad credit loan, or adverse credit loan, is a loan designed for those who are having difficulty getting credit elsewhere, or people trying to improve a bad credit history. Bad credit loans should not be entered lightly as they will come with high interest rates, and put your home in danger of repossession should you fail to keep up your repayments. You are considered to have a poor credit history if you have CCJs against you, have been declared bankrupt, are or have been in arrears on mortgage payments or loans, or have defaulted on repayments.
This type of loan could help turn a bad credit history around, provided that you keep up with your payments faultlessly. The recent good credit history will help counteract the older poor credit history as time goes on. Lenders can offer between £5,000 up to £300,000 and will expect monthly instalments to repay the loan.
Because of your past bad credit and you being of higher risk, these loans will come with a significantly higher rate of interest. Borrowers can expect to receive an interest rate of around 15%, depending on your circumstances. The borrowing rates are high, but unfortunately, there is not much chance you will be considered for lower rate loans until your credit history significantly improves. There are quite a number lenders out there that provide for the sub-prime market, so do shop around before taking out your loan.
Lenders often require evidence that you have every intention of repaying your debt to them as those with bad credit tend to be considered as higher risk borrowers. The lender will often ask for this surety by using your home as security against your loan. Securing your loan against your home can help reduce the cost of the loan.
The harder borrowing terms, combined with a higher interest rate, means that you will need to be extra cautious when borrowing for a loan - defaulting on payments could result in you losing your home, so do not borrow any more than you can realistically afford or need. Read the terms and conditions of the loan extremely carefully before you agree to the loan - your home is at risk, so it pays to be extra cautious when applying for a bad credit loan. If you do not own your home, there are also loans available for tenants with bad credit. Borrowing no more than you actually require will also impact on the cost of your loan, and the interest offered.
It pays to be extremely cautious of companies that guarantee you will be accepted for a bad credit loan - be sure to check the small print, have any verbal agreements confirmed in writing and go to a reputable company. If your bad credit loan sounds too good to be true, then it probably is.
Our trained expert advisers have access to the UK’s leading lenders and using their knowledge and skills will place you with the most suitable leader and product for your needs.