Poor Credit Personal Loan Advice

Are you trying to obtain an unsecured personal loan but your applications keep getting turned down? If so then you may have adverse or poor credit history and it is this score which is leading to your applications being constantly turned down.

A credit history is used as a footprint as to how good you are at repaying your debts, as well as seeing what other financial commitments you have. The credit agencies then use this information to assign you a credit rating which is used by lenders to assess your suitability for a loan.

There are two types of loan, unsecured loans (the lender requires no collateral against the debt) and secured which you can get if you have ‘poor credit’.

What can you do about your poor credit rating?

There is not much in the short term that you can do to influence this rating however with time if you pay your bills on time each month and curb spending by limiting the amount of debt you have on your credit cards then you can help to bring the score down.

Other factors that also affect credit rating include bounced cheques, missed payments, late monthly payments, CCJs, failure to fulfil a financial agreement and constantly moving house or changing jobs. Each time you do one of the above negative things for your credit rating, a report is sent to the credit agency and this in turn lowers your credit score. This means that you will find it hard to obtain loans, mortgages and finance and that a poor credit loan may be your only option.

I have a poor credit history who will give me a loan?

Many lenders specialise in offering poor credit personal loans to people in the UK, these types of lenders are usually called sub prime lenders and most of them do have bad press because of the interest they charge, however you must bear in mind that without these lenders, people with bad credit wouldn’t be able to get a loan. Examples of these types of company that offer ‘cheap’ unsecured loan deals include Welcome Finance, Norton Finance and Ocean Finance.

The down side to a bad credit personal loan is that you will pay a higher interest rate than someone who holds a good credit score. However why not use it to your advantage and pay off the poor credit loan on time each and every month and this will help to repair your credit score over time.

The Interest rates on bad credit loans are high, can I do anything to lower it?

Unfortunately a poor credit loan has a high interest rate because of the risk that somebody with a bad credit rating represents. Looking at this from a lenders perspective, they have to offset the risk of you not repaying the loan against higher interest rates because in the past you have shown that you may have missed monthly payments or likely to not pay off the loan in full.

In saying that, if you own your own home, you may be able to get a poor credit secured loan, which uses your home as collateral for the loan and as a result the interest rate will be lower than with an unsecured loan. You will likely to be able to lend a larger sum than an unsecured loan, typically around £2,000 - £50,000 however the loan period could be up to 25 years. However please think carefully before securing a debt against your home!

Alternatively if you don’t own a property then the only option may be to have a poor credit personal loan where the interest rate is much higher and the amount you can borrow is also lower, £500-£10,000 (depending on lender).

I have special circumstances, what is the best personal loan for me?

It is worthwhile researching financial lenders to see if they offer different deals to suit your requirements and read the small print to make sure that you will not get penalised if you pay the loan off early, if you plan on doing this for example.

If you make a sudden large amount of applications for a poor credit personal loan, then there is a good chance your credit rating will be further damaged, so it may well pay to hire an independent financial loan adviser so that they can recommend a company for your loan and then you only need to make a single applications so your credit rating will not further deteriorate.

If you’re a homeowner with poor credit it may be worth considering a poor credit secured loan. See a list of lenders of secured bad credit loans.

Getting the best deal

It is worth looking at the interest charge of a loan and whilst it is a good indication of how much you will pay it is also worth checking the small print. For example, if you are likely to pay off the loan before the agreed period then there may be a penalty charge for doing so. If you are likely to miss a month’s payment or want a payment holiday then to accommodate your circumstance you may end up having to pay more interest monthly. It is certainly worth checking items like this before taking out the loan and if you have special conditions then APR rate isn’t necessarily the best indicator of how ‘good’ a bad credit loan is.