What is a Bad Credit Loan?
The term bad credit loan refers to a loan that has been designed with the unique needs and requirements of people with a poor credit history in mind. Bad credit loans are similar to other personal or secure loans, but more expensive. Bad credit loans can allow those with poor credit to borrow money, often offering a financial lifeline when it comes to covering a major purchase or consolidating other debts.
In addition to this, a bad credit loan can actually help you to repair your credit history, allowing you to prove to potential lenders that you can make payments on time and manage your money responsibly. Of course, like any loan or form of finance, if you’re considering taking out a bad credit loan, it’s important that you ensure you can make your repayments on time.
It’s also important to consider the interest rate, as this type of loan often comes with substantially higher interest rates than other loans. This is because applicants with bad credit tend to pose a higher risk to lenders. The greater the risk you are perceived to be by the prospective lender, the more interest you can expect to pay and the more borrowing restrictions you will usually face.
What is a Credit Score?
A credit score is a numerical rating that demonstrates how you manage your finances, giving lenders an indication of whether or not you’ll pay back the money they potentially lend you.
There are three main credit reference agencies – CallCredit, Equifax, and Experian – who all keep a version of your credit file. Your report contains information about your financial history, including any mortgages, loans, and credit cards you’ve taken out, including information taken from the electoral roll, court records, search, address, and linked data, and account data.
As almost all lenders check your credit record when you apply for a loan, your credit score can affect your ability to borrow money or access financial products such as loans or credit cards. Lenders use the information contained in your credit file to decide whether or not they are prepared to lend to you, how much they will let you borrow, and how much interest they will charge you.
If you’ve got a good credit rating, you will have more choice and access to cheaper loan rates, whilst if you have bad credit you can expect less choice and to pay more to borrow money. If you’ve never had credit before, you may also struggle to access the best deals as you have no track record for lenders to base their decision on.
With this in mind, it’s well worth taking the time to check your credit score. There are plenty of sites out there that will allow you to check your credit score for free and help you to improve it if necessary.