Finding a suitable loan when you have poor credit can be as difficult as finding a needle in a haystack. Banks are unlikely to touch you, and if you’re looking elsewhere for a suitable loan, it can be hard to know where to turn. So where can you find a loan when your credit score is poor, and what pitfalls should you look out for? Read on to find out.
How Lenders view Credit Scores
It’s worth knowing that different lenders use different assessment criteria, and what one may consider a poor score, isn’t necessarily what another will. So if you are rejected by one lender, you may not be rejected by all. Just be sure not to put in too many loan applications in a short period of time, as this can harm your record even further. If your score is very bad, you can still borrow by applying for bad or less than perfect credit loans, but you should also work on a plan to improve your score to access good value credit in future.
Getting the best deal on Bad Credit Loans
There are lenders who will accept those with poor credit, but you will be charged a higher APR for presenting more of a risk. However, although you would normally be advised to check the APR rate on a longer loan as a measure of how much the loan will cost, this isn’t a good way of working out the cost of short term loans, as the APR gives an annual figure.
Working out the cost of short term loans lasting only a month is normally better achieved by looking at the total amount you must repay at the end of the month, including the fee. This should be specified by the lender before you take out the loan. As a guide, the average short term lender will charge £25 for every £100 borrowed, which makes an APR of 1,737%.
Short Term Loan Risks
While taking out a payday or short term loan can be a useful way to borrow money as a short term quick fix, it’s important to pay off loans as soon as the term ends, otherwise you can very quickly spiral into massive debt. Lenders will keep adding interest and late payment fees which can quickly turn a £100 debt into £1000. Always be sure you know how you will repay the loan, don’t roll over your debts for another month, and NEVER be tempted to take out a further payday loan to pay an existing one.
Third Party Lenders
When applying for a loan, you should be certain that you are applying to a legitimate lender or loan broker, as some unscrupulous loan middlemen pose as actual lenders. These companies charge exorbitant fees for referring customers to lenders, whilst giving the impression they are the lenders themselves. Always avoid any company who charge up-front fees or who are not clear about who they are and what they do.
By Harry Price
Harry Price is a freelance writer who specialises in guest blogging. He enjoys marathon training and hiking in the mountains of Europe.