When you’re applying for bad credit loans, it’s easy to feel a little bit confused. There’s lots of jargon, lots of debate around what ‘bad credit’ is and – in some instances – lots of hoops to jump through, forms to fill out and hours spent on hold.
But, despite all of that, bad credit loans are pretty easy to find and to apply for – if you know what you’re looking for. That’s why we’ve put together this quick guide.
What are bad credit loans?
Bad credit loans aren’t technically any different to loans for people with great credit or loans with people for OK credit. The only things that change are the terms, the APR and the likelihood that you’ll be accepted to borrow the money in the first place.
However, there are companies – like us here at Bamboo – that specialise in loans for people with bad credit. The loans we offer are referred to as ‘bad credit loans’ because we’ve made sure that all of our products are tailored to helping with bad credit find borrowing options that are right for them and – hopefully – help them start to rebuild their credit scores.
Check out this post we did a little while ago if you want to find out more about how borrowing can help your credit score.
What to consider for when you’re looking for bad credit loans?
There are lots of things you need to bear in mind when you’re looking for a loan, especially when you have bad credit.
Firstly, decide whether you’re looking for a secured loan or an unsecured loan.
In the simplest terms, a secured loan is a loan that is (for the most part) only available to property owners or people with mortgages.
You can borrow larger amounts of money over longer periods of time but your house will be used as the security for the loan, meaning that the lender can repossess your home, if you are unable to keep up with the repayments.
On the other hand, an unsecured loan (sometimes called a personal loan) is a loan that doesn’t require you to put your house up as security. They’re the kinds of loans that we offer here at Bamboo, and the kind of loans you can take out from your high-street bank.
Secondly, check that the loan applications will leave a soft search on your credit report
Did you know that applying for lots of credit at the same time can damage your credit score? To the lender, if somebody is applying for lots of credit desperately, they’re either in trouble or anticipating trouble. In short, they’re a higher risk.
That’s what you want to avoid, so make sure that the loan you’re applying for only does a soft search on your credit score. These are still noted on your credit report, but lenders can’t see them and they won’t affect your chances of getting accepted for a loan.
Thirdly, check the APR – but tread carefully
The APR (Annual Percentage Rate) is a really helpful figure – it’s calculated to include both the cost of the borrowing and any associated fees that are automatically included.
Overall, the APR is meant to give you a rough idea of the cost of the debt. The Financial Conduct Authority give a good overview of APR and its uses:
APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR takes into account not just the interest on the loan but also other charges you have to pay, for example, any arrangement fee. All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender.
Comparing the APR is a great way to compare bad credit loans – while the interest (which, let’s be honest, can get a little confusing) may vary from lender to lender, the APR is a consistent and directly comparable figure. If one company is offering a loan with 40% APR then – for most cases – it’s going to be cheaper than the 50% APR offering.
However, be careful.
It pays to enquire about these loans and find out what rate you would be offered. By law, lenders only have to offer the advertised APR to 51% of their customers so that they can claim that it is their representative APR. The other 49% of customers can be offered wildly different rates. If you see a bad credit loan you’re interested in applying for, make sure you find out the APR before you agree. Also, if it’s much higher than you anticipated, ask why and see if you can negotiate it down. If you can’t, it might be worth looking for an alternative offering. (After all, that application will have left no mark on your credit report so won’t affect other applications.)
Finally, consider a guarantor loan
When you’ve got a poor credit score, it’s easy to hold off on the decision to buy that car or book that dream holiday because you think that you won’t be accepted to borrow money.
However, guarantor loans have been designed with people like you in mind. They make it much more likely that you’ll be accepted to borrow money and – because repaying monthly payments on time can help steadily improve your credit score – more likely that you’ll be approved for a standard unsecured personal loan or credit card in the future.
In essence, you get somebody to ‘guarantee’ your loan – they agree to pay the repayments if you can’t. And, because the lender has twice the level of security on the loan, they’re often willing to offer better rates to those with bad credit (or, even, offer loans to those that wouldn’t have qualified to borrow money before). If you’d like to find out more about guarantor loans, we’ve written quite a lot about them! To start, here’s a guide to everything you need to know, a guide to finding a guarantor and an overview of what is involved in being a guarantor. (If you’re looking for other options, check out our recent post on very bad credit loan options.)