Bad Credit Loans - A Good Alternative?

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Bad credit loans are becoming ever more popular in post-recession Britain. With banks and building societies becoming tougher than ever on lending, do bad credit loans provide a good alternative?

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It happened to around seven million people in Britain in 2009: their application for a personal loan from the high street bank was turned down. While the big banks were battling with the failing UK financial sector, all high street lenders began to crack down on loan applications. Some loan products were banished altogether – especially those which were lenient on the amount of information which was required from the borrower.

But what of all the millions of regular Britons who need to access money but are finding that their credit file just doesn’t fit the bill? There are many factors which can adversely affect a credit report – from one or two unpaid (or late) bills, a badly managed credit card, being new to the country, even living in the ‘wrong’ postcode! Indeed, having a perfect credit file is not very easy, meaning the percentage of people who get turned down nearly overtake those that are successful! Fortunately, there are alternatives on the market: from payday and logbook loans to bad credit loans.

Bad credit loans (sometimes referred to as loans for people with bad credit) are specially geared towards people who are turned away by mainstream lenders. They are offered by numerous online companies such as Yes Loans and LoanFinder. The easiest way to apply for one is via a bad credit loan broker. These services take basic information from you, such as what amount you want to borrow and how much you can afford to repay. They then take that information to go through their lender files. This makes the ‘search’ for a loan much quicker, as the broker already knows of many lenders who can take on borrowers with ‘unattractive’ credit files.

More flexible than payday loans, bad credit loans vary – you can find tenant and homeowner loans, and the loan length can also be much longer than a quick cash loan.

One aspect that remains, however, is the element of risk. Holding a credit file which says that you have had problems in the past with your finances means that lenders are more wary of lending to you – they are taking on a higher risk, in that you might not be able to pay them back! Consequently, bad credit loans generally carry a higher interest rate than a ‘normal’ personal or secured loan. This is a factor which must be taken into account before applying for a bad credit loan. In addition, it is wise to consider whether you really can afford to take a loan – no matter what type it is. Repayments are simply par for the course on any credit product and bad management (such as late payments) will lead to further damage on your file.

There are attractive features to many bad credit loans – such as a credit building facility. This is a handy extra which allows the borrower to repair their credit rating based on timely repayments on the bad credit loan. This does mean that the borrower must be able to keep up with loan management, in order to prevent an adverse affect.

Before heading for any credit product, it is highly recommended to take time and ‘shop around’. This is because of the high proportion of brokers and companies which now offer bad credit loans – and the loan terms, rates and borrowing amounts can vary greatly. Currently, a company like Wentworth Direct offers an interest rate of around 15.2% while Yes Loans asks for a much higher 48%.

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Xenia Rainey
Which Way to Pay
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