Nearly everyone has to borrow money at some point in their life, whether it's to start a business venture, pay off existing debts, or simply to buy an item that they don't wish to save for. When you need some cash, you may be thinking that a loan could be the easy option, but then when you check your credit report, you might worry that a loan is simply out of your reach. Luckily, there is finance available for people with bad credit, but it can be a lot different to take out a loan when your history isn't great, and you may not find it as easy as someone with a more stable financial past. Here's what to expect when you are looking for a loan, and what you might need to consider.
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Interest rates
Many banks and loan companies try to draw you in with attractive interest rates, but if you have bad credit then you may find that the rate you are offered isn't as good. It's important to read the small print, and to consider the financial implications of taking a loan. A high interest rate will mean that you pay back more by the end of the loan, so make sure you take this into account.
Budget
When applying for a loan with bad credit, it can help to have a budget drawn up, so you can argue your case that it's affordable. This means you should keep track of all your incoming payments, and then compare it to your outgoings, which can include:
- Mortgage or rent
- Utilities
- Taxes
- Food
- Entertainment
- Existing debt repayments
Longer loan terms
If you can't afford large repayments, but have no choice but to borrow, then looking for a loan with a longer term can be a solution. The main downside to this is that you'll pay back so much more, and although you'll have smaller monthly repayments, there will be more of them. It's important to speak to a financial advisor before you decide whether to sign up for a long loan term, as they may be able to help you seek alternatives.
Guarantors
Those with poor credit will often need further security on a loan, and this can come in the form of a guarantor. This can be anyone with a good credit rating who is willing to shoulder the risk of lending to you, and it means they will need to sign an agreement that they will make payments if you are unable to. Therefore it should be someone who can trust you, and family members are often the first people approached. Some people also put items such as their car, or even their home as collateral, a guarantee to the bank, although this can be extremely risky and you'll need to seek financial advice.
It's not always easy to get a loan when your credit isn't top notch, and that's why you should look around for the right deal. Although it may cost you more to borrow, it's possible for even those with bad credit to find a loan to suit them, and with the right advice this can help you to put your finances back in order.
