Bad Credit Loans, Are They Still Available?
Not a homeowner or have negative equity? Got a poor or broken credit history littered with CCJ's? Then getting an application for a new mortgage or loan considered could be difficult but is by no means impossible.
Despite the current credit crunch and the impact that this has had on lenders, there are still funds available from lenders for customers with less than perfect credit histories or with no home to pledge as security.
The principal criteria for being considered for a loan is that you are currently employed and are aged over 18. Provided that you fulfil these two criteria then you will be able to get your application considered by one or more of the specialist lenders operating in this market.
The drawback is that the rate you will be charged will be higher than if you had a good credit record or had a house to pledge as security. You may also find that the repayment terms will be shorter so as to accelerate the repayment of the loan. Crucial in determining what you are able to borrow will be the amount of earnings that you, or anyone else in your household, brings in and is available to service the debt.
Another way of enhancing the credit is to look for a guarantor or joint borrower who will help to support your obligation by standing in your place should you fail. This is probably the case with family members (particularly parents) who will be helping siblings get onto the property ladder. Unsecured loans may be available for up to £25,000 if you have a bad credit record but own a home. Tenants can look to a maximum of about £15,000 as an unsecured loan.
Consolidation loans (that is where you plan to pay off all your current borrowings with a new loan) can be seen by lenders as a positive move since it can reduce the amount of your monthly outgoings and improve your net monthly cashflow. This improves the position of existing lenders.
Since the risk for lenders of this type of facility is higher, borrowers must expect to pay a higher rate of interest than those frequently advertised to borrowers of good standing. For example, you might expect to pay in the region of 13.5% for a secured loan and closer to 20% for an unsecured loan. This compares with rates of 5.5% for the best secured loan to 14% for an unsecured loan to a good credit rated customer. As can be seen, the premium is substantial – but at least the source of funds is available.
There are many specialist brokers offering to place such loans. Most can be found by a simple internet search and it becomes a trawl through their details and offers to try and find the right one for your circumstances. As ever, care must be taken when looking at secured loans since your home will be at risk of repossession if you fail to keep up the payments.
Having chosen your broker, they should do all the legwork and with their established links, the process should be fairly fast. There is no reason why you shouldn't receive a decision in principle within a day or so (except for the largest loans) and be in a position to have the funds transferred to your account within days (for an unsecured loan) or weeks (for a secured loan).
Short term, low value 'payday' loans are also available to those with low credit scores. These are loans which are typically below £750 where the payments are taken on the pay day of the borrower. This means that the borrower never gets to see the loan payment amount before it is deducted from their wages.
Credit Unions also provide a good source of low value loans (typically less than £1,000) at reasonable terms. These are based on a community and short term repayment basis and fill a useful niche in the market.
It may also be the case that you are unable to prove your income. This is usually the case for self employed people or those on contracts where earnings ebb and flow. Prospective borrowers that fall into this category may have a good credit history but just cannot provide a record of regular earnings. Some lenders will treat this as a problem loan – but working with a specialist broker will enable you to self certify your earnings based on historical records rather than a contract of employment.