The term ‘bad credit loan’ is often used in the lending world. Some of us fear it, some of us don’t understand it. And some of us think that it’s a phrase used to put people off borrowing money.
In this latest blog, we address these differing views. Moolr explain exactly what a bad credit loan could mean for you.
We can’t discuss bad credit loans without understanding credit reports, and their role in borrowing. Your credit report is a file you access through several authorised and regulated organisations. It is fundamentally a full list of all your previous borrowing, including loans, mortgages, credit cards, store cards, and so on.
Also within your credit report, lenders see how many times you have had a ‘credit search’ performed by other lenders.This is important, as it can give an indication of how much you appear to rely on credit. It also informs how many times other lenders have rejected your application.
A high ratio of search to lending products may mean other lenders aren’t willing to lend to you. Conversely, a large amount of items on your credit report might point to an over-reliance on bad credit loans, or other borrowing products. This could mean you would have trouble repaying.
However credit reports aren’t all bad! They provide lenders with a method of determining your ability to repay a bad credit loan (which helps you manage your finances, as much as anything else). They also show a lender which borrowing products you have completely paid off, and if you are still in your repayment period, how many payments you have successfully made.
All of these factors contribute to an overall credit score, which is usually out of 1000 – the higher the better.
Your credit report is thus crucial should you decide to borrow money. We know that anything to do with lending is stored here. The report is used as a guideline to lenders as to whether they should offer a bad credit loan. They use it as a gauge to trustworthiness.
However there are other factors that need to be highlighted that determine a lender’s risk measure of a customer. These are known as an ‘affordability assessment’.
One factor included in a bad credit loan affordability assessment is any regular income you earn. With some lenders, you do not need to be employed, but you can use benefit income, as long as it is regular, and within your means. If you receive child maintenance, this is of course also an income. Lenders will take this into consideration. Once all of your income is analysed against your expenditure, the lender has an idea of your ‘disposable income’, or DI for short.
In some cases, your DI might help dictate that a lender will only offer a lower amount. This means the lender deems your DI to be too low to afford repayments on the original request. Another option is to offer you a bad credit loan that is repaid over a longer period of time. This will in turn reduce the monthly repayment. In this scenario, it is important to understand that this would mean a higher amount is repaid overall.
Bad credit loans are nothing to fear. Whilst there are very important considerations to be had before applying for a bad credit loan, they should be seen as a positive option for those with bad credit histories. It is all too easy to think that because of problems in the past, you will never be able to obtain a loan again. This is simply not the case, as moolr.co.uk work closely with lenders that offer a bad credit loan. There are several options available still.
Often the risk associated with lending to customers with bad credit histories is offset by offering higher APRs. This increases the overall cost of borrowing. However it does mean that if the loan is necessary, it affords the opportunity to start rebuilding your credit report. This means that in time, you will find it easier to move away from bad credit loans. This is because more and more traditional lenders deem your affordability assessment to be acceptable for a normal loan.
At moolr.co.uk, we are able to show your application to many bad credit loan lenders. Our customers obtain a no obligation initial loan quote in a matter of minutes.