Even with a less than perfect credit profile it’s possible to shop around for a personal loan.
When you have a bad credit history, you’re more likely be rejected for competitive loan deals with low interest rates.
Those with a poor credit profile you pose more of a risk to lenders, who want to protect themselves from the risk of non-payment.
Don’t be disheartened though, as there are loans designed for people in these situations.
Luckily because it’s such a competitive marketplace, you don’t have to take the first bad credit loan that comes along, but can shop around for the right deal for your circumstances.
Less favourable rates for poor credit history
Lenders offset the risk with bad credit borrowers in a number of ways.
Most lenders will offer higher or variable interest rates, or additional fees when it comes to more risky borrowers.
The good news is that you’d be able to get the loan. The bad news is that you could wind up paying considerably more for it in the long run.
In some cases, lenders may offer reasonable rates or larger loan amounts, but in return they’ll require you to secure the loan.
This means that you’ll need to offer up something of value – usually your car or house – as collateral in case you’re unable to keep up with the repayments.
Beware of shoddy loan terms
Depending on what rates you’re comfortable with, and whether or not you decide to secure the loan, the terms you’re offered could vary wildly.
The key for borrowers is to be wary of questionable lending practices that some unscrupulous lenders use to take advantage of desperate consumers.
These include hidden fees, up-front application costs, verbal promises not honoured, or fine print tactics to increase fees and costs to unknowing borrowers.
Some lenders may even throw in early repayment penalties that knock borrowers who pay off loan balances early as well.
Short-term borrowing can be very costly
Logbook loans, where you use your car as collateral, and payday loans are a common short-term solution.
These should be avoided wherever possible, as their interest rates and fees can be quite alarming.
Because these short-term loans often boast instant approval and no credit checks, they can be a tempting choice.
However, these loans can have rates in excess of 1000% APR, so careful consideration is needed before applying for one.
Play it safe when borrowing
Be cautious and research thoroughly when shopping for loans.
While credible lenders offer good products, some lenders may take advantage of the vulnerability of those with poor credit.
Before you sign up, it helps to do the following:
Compare all product features, read the fine print and watch for hidden fees or early payment penalties.
Calculate just how much the loan will cost you over its full term and then decide if it is really worth it. Use our loan calculator to help figure this out.
Also make sure that you can comfortably meet the monthly loan repayments.
Failure to do so will further damage your credit rating, making it even harder for you to borrow in the future.
You should make an effort to improve your credit rating so you can take advantage of better deals.
It can be a long journey but one worth taking.