In the current economic climate, many households are finding it difficult to make ends meet. In December 2012, the Office for National Statistics confirmed that inflation remained at 2.7%, largely as a result of increases in food and energy prices.
With inflation continuing to outstrip wage rises, it comes as no surprise that many people have found it harder to manage their repayments on credit cards, overdrafts, loans and even to meet their mortgage payments. For those who are already struggling to manage their finances, however, are loans for those with bad credit a welcome development?
What Are Bad Credit Loans?
Lenders who operate in this market tend be specialists. Some only lend to homeowners, others will lend if there is a guarantor. Borrowers need to be, at a minimum, over 18 years of age and have an income from employment. Loans are usually available for between £500 and £30,000, depending on personal circumstances. Larger loans are generally repayable over five to 30 years, while lower sums are repayable over one or two years. Homeowners can borrow at the higher end of the range, subject to having sufficient equity, but this comes with the risk of repossession if they find they can’t make their monthly payments.
Because of the higher risk that bad credit loans bring to lenders and higher incidences of default, the Annual Percentage Rate (APR) charged is higher than for standard loan products. This APR can vary significantly between lenders, ranging from around 10% to upwards of 400%. Identifying the most competitive product is, therefore, essential for any borrower.
The Pros and Cons
While detractors might say that bad credit loans only encourage people to get into more debt and that the high interest rates they have can exacerbate debt problems, these loans do have some good points.
A licensed, responsible lender will ensure affordability before offering a loan so, in theory, borrowers should be able to manage the repayments. People need bad credit loans for a number of reasons, including sudden changes in circumstances or unexpected events such as illness. As well as giving those with a less than exemplary credit record some often much-needed funds, these loans can also help to re-establish their credit profile.
Loans for those with a poor credit record, therefore, are not always a bad idea, as long as they are used correctly.
If your bad credit is preventing you from getting a loan, there are a number of credit repair services that can help get you back on your feet financially.