Families and working people have experienced unprecedented financial difficulties in recent years. Since the financial crash of 2008, the cost of living has increased but wage rises have been much slower. Even some professional people have struggled to pay debts. Defaults on mortgages and loans are more common than ever before. It means that a lot more people have bad credit and are unable to get mortgages, credit cards, and even loans. Thankfully, there is a new wave of loans available to those who have a history of bad credit. Some of the following options can help people get back on their feet and begin the process of repairing their bad credit history.
Payday loans are short-term cash loans designed to pay back in a short time frame, typically no more than a week later. As they are short term, they are ideal for people with poor credit. The name “payday loan” refers to the desired target market of people who are short of money in the final few days or week before payday and need quick access to a small amount of cash. They have high APRs usually in the hundreds or thousands of percent. Many who use them cite that payday loans are cheaper than taking out a short-term bank loan or allowing their bank account to become overdrawn for a few days.
Debt consolidation loans
People with bad credit usually have not run up debt on a single loan or finance plan. They often owe money to many different people under several plans. For example, they may have a lot of credit card debt, an unsecured bank loan, store cards, and so on. A debt consolidation loan brings all these finance plans together into a single plan repaid through a single monthly payment. It is no longer necessary to plan for separate payments and worrying about whether there is enough money to cover each debt as they come out of the account. The right debt consolidation loan can reduce how much is owed when applied against high interest borrowing plans.
Some loans have a higher chance of approval for people with bad credit when they are for specific things. To many people, a car is an essential part of daily life. They are needed to get to work. Some people run a small business that needs a van as a tool of the trade (delivery drivers and tradespeople). That is why auto loan approvals are based on income or savings and the ability to pay than they are on the past credit score. It is a structured instalment loan with regular payments each month. Some loan types include an option at the end of the loan to give the vehicle back or make a cash lump sum.
Peer-to peer loan
P2P loans bring crowdsourcing (called crowdlending) to the world of finance. Rather than applying for and obtaining a loan from a financial institution such as a bank, individuals create personal agreements with other individuals. A lender makes a certain amount of cash available, setting their own interest terms such as repayable period and interest rate. The money is already available so there are no less stringent credit checks. It is an unsecured loan and the application is considered on the ability to pay. The main advantage is that the person in need of the loan can select terms that are suitable for their individual needs.
This type of loan relies less on credit history, and more on ability to pay and on asset value. A secured loan offers something of substantial value against the loan in case of default. Typically, this involves a vehicle, land, or property such as a home. Interest rates are lower, and repayment is spread over a long period such as years or even decades. A mortgage is a typical example of a secured loan. A secured loan is only possible when the person applying for it has collateral against which to secure the loan. If the person defaults, the lender is legally able to seize the asset(s) and sell them.
Guarantor loans are not secured against property, nor are they based on credit history. Instead, they are approved based on the applicant having another person on whom to rely if they fail to make a payment. Instead, the person promising to guarantee the loan will become responsible for the payments. With student rental agreements, for example, the parent or guardian of the student will pay the rent if the student fails or is unable to do so. Guarantors agree to become legally responsible to pay the debt in the result of default.
Bad credit is commonplace today with many having experienced financial hardship. Although not ideal, there are a number of Bad Credit Loans available to people who have experienced financial difficulty and struggle to otherwise receive much needed loans.