Consumers with a poor credit rating can find it difficult and more expensive to borrow money. Lenders see them as a risk. The lack of a credit history can also be a barrier. Having no credit history means that lenders lack the information required to assess the applicant’s borrowing habits, an indicator of how the applicant will handle their finances once a loan has been issued. As a result, many people with a poor credit history or a limited credit history must opt for the bad credit loans. These loans are beneficial in some ways, but they come at a cost.
Why Choose Bad Credit Loans?
Bad credit loans, sometimes called adverse credit loans, were created specifically for consumers with a poor credit history or a limited credit history. These loans are available to persons over the age of 18 and actively employed.
Bad credit loans are beneficial for some consumers who need to consolidate debts. Many traditional lenders avoid issuing bad credit loans but subprime lenders will issue such loans to consumers who are, for whatever reason, unable to get credit from a traditional source like a high street bank. They help consumers who have set a goal of securing a bad credit loan in order to improve their credit rating. This can be achieved because they pay one lender on time and in full every month.
Types of Bad Credit Loans
Subprime lenders offer both secured and unsecured loans. Unsecured loans are typically reserved for smaller loan amounts (less than £35,000) and carry higher rates of interest. The benefit is that they require no collateral and property owned by the applicant is not at risk if payments default. With a secured loan, however, the rate of interest is usually lower because the applicant has agreed to use their home or other valuable asset as collateral for that loan. This means that their property is at risk and can be collected by the lender if they cannot make their payments.
Important to Be Considered
When considering any type of loan, consumers should consider their ability to repay the loan. The ability to repay over a shorter period of time may mean paying less interest. It is important to consider how much can be comfortably re paid each month and if there are any potential changes that might occur in personal circumstances.