Personal loans are a great tool when used correctly. We don’t all have the money lying around today to get what we need or want. A personal loan, among other similar credit options, is one of the best ways to source external finance without breaking the bank. Relying on loans to get by, however, is not good for anyone – you may struggle to repay the debt, leading to the need for more debt – a cycle that is difficult to escape from. Lenders also need to make sure they are able to get their money back with interest. How do they assess your ability to repay? Your credit score plays a significant role, among other factors.
If you’ve had difficulty repaying debts in the past, it’s likely your credit score has suffered. This indicates to lenders that you’re not their ideal customer, but don’t worry, you’re not out of options. Specialist lenders understand that not everyone has an excellent financial history yet deserve an opportunity to access important finance. There are now many personal loan options for those with poor credit, but you need to understand what you’re getting into. Let’s take a look.
How to know if you have a bad credit score or not
It’s free to check your credit score – just search online and enter your details. When you get your score, you’ll see that it’s a number between 0 and 1000, sometimes 1200 depending on the credit agency. Nonetheless, it’s most important to know that 550 is the ‘magic’ number. Above this and your credit score is decent; below this and you’re generally considered to have bad credit.
If you have bad credit, often due to missed or late repayments, too many credit applications, bankruptcies or application denials, you should first take constructive actions to fix your score. Start by repaying any outstanding loans on time (every time), pay off any credit you have and, in general, manage your debts responsibly. Of course, not all of us have the luxury to wait. This is why personal loans for those with bad credit exist.
What is a personal loan for bad credit?
Personal loans for borrowers with bad credit are similar to standard personal loans. However, they come with three main differences:
- Shorter loan terms. Lenders will want to recover their money sooner; the shorter the loan term, the more rapidly they recoup their funds. You may be able to borrow for anywhere from 2 months to 2 years.
- Higher fees. Often there will be additional establishment and account management fees to compensate for the extra work and risk taken to lend you money.
- Higher interest rates. The primary compensator for risk in a loan is the interest rate. If the personal loan is not secured, lenders may charge up to 48% p.a on loans to borrowers with poor credit.
How to compare personal loans
Naturally, it’s a great idea to shop around when purchasing a good or accessing a service. When shopping around for loans, it’s essential to compare the interest rates charges, inclusive of all costs where possible. This is often known as the ‘comparison rate’ and will be provided by each lender.
“Do your research and consider all factors before making a decision on your personal loan.”
Although the comparison rate is the main factor you’ll need to consider, there are other fees that may impact your decision. Upfront costs such as application fees and ongoing costs such as annual account maintenance fees both add up. Furthermore, making your repayments late (or early) may also cop a charge. Do your research and consider all factors before making a decision on your personal loan.
Qualify for a personal loan with bad credit
Having your application accepted might seem like a long shot if you have bad credit, but it doesn’t have to be. Just like any loan, you’ll need to be over 18 years old, be a citizen or PR and be employed or have a sufficient source of income. Your pool of lenders will be limited as you’ll need to avoid those that are unwilling to serve customers with bad credit. Nonetheless, make sure you maximise the quality of your application. That means having all your documents ready and in order – proof of identity, proof of income, bank statements and details of any other debts you are carrying.
We also strongly suggest working with an experienced personal finance broker. They will assist you in finding a fair deal with lenders that understand your situation. Brokers are also excellent at presenting your situation in the best light and negotiating on your behalf. While a bad credit score makes things a bit harder, it’s certainly not an excuse to turn your situation around.
Capital Plus Finance is an experienced personal loan broker that has your business’s best interests at heart. With a panel of many lenders, The Capital Plus Finance team will do everything we can to help you secure a suitable finance solution. Please give us a call anytime to find out more or to have an obligation-free chat about your personal and business situation.