In this world where keeping your credit stellar is a tough challenge, securing loans from banks and other traditional lenders can be extremely difficult, impossible even. If you ‘re just starting out on credit or have damaged your own credit, here are alternative ways of borrowing just for you.
Payday loans are unsecured, short term loans designed to be paid by the borrower on the next payday, thus the term. The borrower and the lender will agree on a certain amount, which the borrower will have to settle as one-off payment on the next payday, including the interests.
In order for the lender to collect payment, the borrower will write a post dated check indicating the amount agreed upon, and the lender will then cash in that check when payday comes. If successful payment wasn’t made, the balance will roll over on the next period.
Logbook loans are loans secured against the borrower’s vehicle. The applicant will sign over the bill of sale and hand over the vehicle’s handbook to the lender, transferring the vehicle’s ownership while the loan is in force. Although the borrower can still use the said vehicle, the lender has the right to seize it even without court order if the borrower defaults.Depending on the car’s value, the borrower can access a larger amount of cash than payday loans.
As the term implies, this type of bad credit loan requires a second person to act as guarantor. The guarantor can be the applicant’s relative, friend, colleague, or anyone who is willing to put their trust and co-sign the loan, as long as the person has a stable source of income, is at least 18 years of age, has a debit card or bank account, and a UK homeowner.
The role of the guarantor is to take full responsibility of the loan if the borrower refuses to pay. That’s why everyone should exercise extreme caution in guaranteeing a loan. The good thing about this is that the guarantor can help the borrower manage their finances and possibly improve their credit.Pros of Bad Credit Loans
No credit checks.
These types of loans mainly cater to individuals with bad credit, thus routine credit checks are bypassed. These loans only require the borrower to be of legal age and earning sufficient income to pay the loan back.
These loans aim to be very accessible for anyone in need of financial assistance, thus they eliminate the need for complicated paperwork. Applications are mostly done online and interviews are rarely needed.
Instant cash. Bad credit loans are designed to help individuals who are in dire need of cash but couldn’t qualify for ordinary loans. Because of the easy to fulfil requirements and absence of credit checks, successful applicants can usually obtain their money within a few hours.
Cons of Bad Credit Loans
Because the market of these loans are people with bad credit, lenders normally charge high interest rates to cover for the risk they are taking. Thus, you can expect bad credit loans to be costly compared to those you can obtain from traditional high street lenders.
Risk of losing collateral. If you took out a logbook loan, for instance, there will always be the risk to lose your asset if you find yourself unable to afford repayments later on.
Credit score damage. If the borrower fails to make payments, there will be a further drop in the credit score. Still, it’s worth knowing that bad credit loans can be very rewarding and can cause a credit score boost if handled accordingly.