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Home > Money Blog > Financial Guides > What is a Bad Credit Loan? – All You Need to Know

What is a Bad Credit Loan? – All You Need to Know

The Bad Credit Loan – All You Need to Know

A Bad Credit Loan is a type of loan designed for people with a poor or bad credit history.

There are many reasons that people can find themselves with bad credit and looking for a bad credit loan.  Everything from missing payments on previous or current credit agreements, through to having a County Court Judgement against their names.

People that are new to lending may also find themselves with a low credit score. This is because lenders don’t have access to any lending history to make a decision on.

A bad credit rating means that lenders will consider you a greater risk when it comes to you borrowing money.  Some lenders won’t lend to people with bad credit or poor credit. Other lenders will charge a higher return to reflect the increased risk.

The Pros and Cons of A Bad Credit Loan

Just because you have a low or poor credit rating doesn’t mean you cannot borrow money.  This can be good news for many reasons – including consolidating debts to make monthly payments more manageable, or perhaps to buy a vehicle to get you to and from work.

Taking out a Bad Credit Loan means that you can actually start to repair your credit rating.  As long as you always make your payments in full and on time, you are demonstrating that you can manage your finances responsibly.  Over time, good financial management could lead to an improvement in your credit score.

On the negative side, a Bad Credit Loan will probably cost you considerably more money than a loan to a person with a good credit rating.  A person with poor previous credit applying for a bad credit loan represents a larger risk to the lender and therefore the interest rate offered could be much higher.

Good to Know

So, your credit rating is not as great as you would like.  Here are a few things to think about before applying for a bad credit loan.

Interest Rates: The interest rates will vary. This is dependent on a number of factors; How much do you want to borrow? Over what period?  How poor is your credit score?  Is your borrowing ‘secured’ or ‘unsecured’?

Secured or Unsecured: The interest rate can sometimes be less with a secured loan.  However, your home is at risk if you do not keep up repayments on any loan secured against it. With a loan from Progressive Money, there is no automatic link to your property.

How Long to Take a Loan Over:  You should always remember that the longer it takes you to pay back a loan, the more interest you will pay. However, you should also make sure that the repayments are affordable.

Credit Scores: Whilst paying off a Bad Credit Loan in full and on time is a credit positive, the opposite is also true. If you do not keep up with loan repayments, it will have a serious negative effect on your credit score. If your loan is secured, your home could be at risk.

What are the Alternatives to a Bad Credit Loan ?

A Bad Credit Loan may not be the right financial product for you, so make sure that you do your research before applying. For free and impartial advice, you could visit moneyadviceservice.org.uk.

For further Progressive Money news and information, click here.

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