Bad credit loans are designed for people that have a poor credit history or a limited credit history. Bad credit can be caused by a number of reasons. Some have defaulted on or failed to repay previous loans on time. Others have had a County Court Judgement (CCJ) issued against them. People who have a limited credit history may have never applied for a loan or credit card before. Both types of credit, bad and limited, pose problems to lenders because they cannot properly assess a borrower’s ability to repay the amount borrowed. Specialist loans like bad credit loans are available to help people repair or rebuild their poor credit records.
Pros and Cons of Bad Credit Loans
- The biggest advantage of bad credit loans is that these loans give people with bad limited credit histories a chance to borrow money when they need it.
- They can provide a real financial lifeline to people who need a loan to cover a major purchase or consolidate other debts.
- Bad credit loans can also help people who have a bad credit rating repair their credit status.
- Provided that payments are made on time, borrowers can once again demonstrate that they manage money responsibly.
- The biggest downside to receiving a bad credit loan is the high interest rates required.
- Interest rates are normally very high compared to standard loans because of the risk lenders face with default.
- Most applicants who apply for bad credit loans have had problems managing their finances previously. They are, therefore, considered a high risk for lenders.
How Long Will It Take to Get Your Loan Approved?
Well, it varies between the lenders but you may also expect an instant decision to be made right after you apply for the loan over the phone or online. However, you must keep in mind that it may take couple of days to get approval. In some cases, lenders may ask for evidence of income due to which approval of the loan could take a bit longer than usual.