There can be little doubt that having a bad crediting rating currently makes borrowing more difficult and more expensive.
However, this is not to say that all borrowing doors are now closed. With a little homework and a strong will against TV advertising, you will soon find that there are still some affordable options out there.
A Little Tricky
If you have a bad credit rating/history, or even in some cases no credit history at all, things can be a little tricky when trying to give yourself the best possible chance of pushing your loan application through.
Any blemish on your credit file will ensure that potential lenders view you as a high risk borrower. In some cases this will mean you will be ineligible for the loan and even if you eligible, you will often find that the interest rate you will be charged goes through the roof. This means that even an ordinary loan can ultimately turn out to be very expensive if you are not careful.
What Are My Options?
You only have to turn on the television throughout the day to see payday loans being portrayed as the bad credit saviour by their respective lender for anyone struggling to get a loan through more traditional methods.
Whilst it cannot be argued that payday loans are available to anyone with a bad credit rating, it also cannot be argued that some of these lenders charge up to 5000% APR!!
Despite the fact that many carefully constructed advertising campaigns would lead you to believe these are your only options, this is not actually the case. If you can find someone who is willing to back your loan application, a far more suitable and affordable option exists.
An Affordable Option
This more affordable and suitable option is called a guarantor loan and it works by giving the opportunity to anyone with a bad credit rating to apply for a loan at a reasonable rate of APR, on the proviso that they find a family member of close friend (who is in a better financial situation), who will act as guarantor for the loan and repay the debt if the borrower defaults.
What should you know about this type of loan?
- Positives: It is available in a variety of amounts, ranging from £500 up to £10,000 in some cases. It is an unsecured personal loan so if can be used for a wide variety of purposes. Adding a guarantor to the application tips the balance in the favour of the applicant when submitting the loan. Some loans can even be repaid early without early repayment fees.
- Negatives: Typically, the APR of a guarantor loan is around 50%, which whilst considerably cheaper than payday loans and the like, is still more expensive than a standard personal loan. With minimum loan terms of a year, the amount you repay can be pretty hefty, although you can pay it off early. The guarantor can potentially be chased for the money if the borrower defaults, so it is very important to ensure that you do not fall behind on your debts.
Building Credit Ratings
One of the most important benefits of a guarantor loan is it provides the borrower with the opportunity to improve their credit rating. By making all repayments on time and in full, it will go a long way towards re-assuring future lenders that you are a trust worthy borrower.
Before applying for any loan though, it is always a good idea to check your credit record just to make sure that everything is correct. It is rare but not unknown for errors to be found which can make a difference.
If this is the case, it may well be that your financial situation is not quite as bad as you think and that rectifying the errors will help to improve your financial standing in the eyes of potential lenders.
Bio – Amanda Gillam
I work as a blog writer for a finance company called http://www.solution-loans.co.uk/ which specialises in Guarantor Loans. I hold a degree in financial management and enjoy writing about a variety of topics including finance, transport, travel, sport and business.