What do you do if your credit is bad and you need a loan?
Throughout everyone’s life, you’ll probably need a loan at some point. See, financial tough spots can affect us all, which means you’re strapped for cash when you need it most. Whilst most traditional lenders, like banks and high-street loan companies, will be able to provide a loan, they’ll reserve their best rates for those with good credit. And for those with bad credit, you probably won’t be approved or receive a good rate.
The thing is with lenders, they’re reliant on judging their applicants by their credit score, to see if they can approve you for a loan. Whilst this is great news if you’ve got good credit, for those with bad credit it’s disheartening. You may feel like there’s no way to borrow money when you’ve got bad credit. However, we’re here to tell you, that it’s not the case!
This is a guide to bad credit guarantor loans, the easy way to borrow money without good credit. We’ll be going into detail about bad credit lending, as well as what can affect your credit score and how you can work to improve it, so you can receive the best loan rates in the future. Welcome to bad credit lending, 101.
What is a Credit Score?
In this modern age, credit is everything. As you know, it dictates whether we can land ourselves a loan, but it also affects a lot more parts of our financial life. From mortgages and phone contract approvals, your credit score is what lenders and companies will judge you on, when you’re looking to purchase most financial products. But, how is your credit score made up? And why does it have such a huge impact on our lending options? Well, we’re about to tell you…
Let’s start with what a credit score is. Essentially, it’s your financial footprint, a digitised version of your financial history in one place. So, every loan you’ve taken out, every bill you’ve missed or credit card you’ve applied for factors in to making up your credit score. It’s what lenders judge you on, because the better your credit score, the better you appear as a borrower. Your good credit shows your reliability on paying back loans to traditional lenders. That’s why those with good credit scores usually receive the best rates for loans and are approved for them too.
Credit scores are set by 3 main agencies in the UK. These companies are Equifax, Experian, Callcredit. Through these various sites, you can access your full credit report, which is completely up to date. However, going through these agencies costs money. However, there are free websites where credit scores can be checked too. These are:
- Clear Score
- MSEs Credit Club
- Noddle
Using these sites, you can receive a full credit report. Each of the three main agencies uses different scales to judge your credit scores. With Equifax scoring out of 700, Experian out of 999 and finally Callcredit which scores out of 5. In the eyes of the agencies, a good credit score looks like this:
- 420/700
- 880/999
- 4/5
Whilst every lender’s credit rating criteria will vary, these are considered to be ‘good’ credit scores.
Why is my credit bad?
After finding out your credit score, you may be questioning as to why it’s considered bad. Your credit score can be affected by many things, including missed or late payments on bills, mortgages or loans etc. However, some people may have never built up a credit profile. In order to have a credit score, you will have needed to either paid a bill, in your name, or borrowed and repaid money. No credit is considered bad credit, so, in some cases, this could be the reason for your bad credit score.
Bad Credit Guarantor Loans
Luckily for bad credit loan seekers, there are options open to you. However, not every option is great. One is a payday loan. These loans are typically for smaller amounts (between £100 – £1,000) and are designed to hold you over between paydays (hence, the name). However, what comes with these loans is a hefty interest rate, sometimes up to 1000 per cent APR. This turns your small pay out into an almost impossible thing to repay. Paid off quickly, these loans aren’t much of an issue. But the longer they are left unpaid, the more the interest will increase. They are very costly if not handled correctly.
However, we’re not here to talk about payday loans. No, we’re looking at how to borrow larger amounts of money, despite having bad credits. Enter, guarantor loans. Yes, bad credit guarantor loans are an ideal way to borrow money if you’ve got bad credit, as they don’t rely on your credit score. But, we’ll get into that soon. We’re going to be looking at guarantor loans in depth below.
How are bad credit guarantor loans different? Well, firstly they don’t rely on your credit score. And we mean not at all.
When taking out a guarantor loan, it doesn’t matter if you’ve got poor credit, all you need to be approved is a guarantor. A guarantor will sign for your loan with you, stating that should you be unable to meet repayments on the loan, they will cover the costs for you.
Although, most guarantor loan providers will only contact your guarantor as a last resort. Your guarantor needs good credit, to be between the ages of 18-78 and be a UK homeowner. You’ll be able to borrow a larger amount of money (between £1,000 – £15,000 dependent on the lender), without having a good credit score.
These unsecure personal loans, are spread over 1-5 year repayments and have a fixed interest rate. Yes, they’ll be no increases or hidden charges sneaking up on you. You’ll pay back the same amount each month and at the same rate, for the duration of your loan term.
There’s no deposit to pay either, which makes these loans ideal for those who are strapped for cash and with bad credit. Whilst repaying your loan, you’ll be rebuilding your credit score in the process, by meeting your payments on time.
Because guarantor loans are personal loans, they can be used for almost anything (as long as it’s legal). Bad credit guarantor loans’ average interest rates are between 29.9 per cent and6 69.9, dependent on the amount you borrow and how long the loan term is.
Even if you have bad credit, there are still options open to you for borrowing money. Guarantor loan providers don’t need your credit score to approve you for a loan.
All you need to have is a guarantor who is willing to co-sign the application with you, to agree that should you be unable to meet the repayments, they will cover them for you. It’s an ideal way to borrow money, if your credit score is less than desirable. A guarantor loan can help rebuild your credit score so in the future, you can find the best loan rates around for yourself.
