For the 9 million Britons that are considered to have bad credit histories, it can be very hard to get approved for loans, especially when circumstances arise and you really need them.
You are not instantly given a bad credit rating when you turn 18, instead you are given a ‘no credit rating’ and you have demonstrate your ability to repay things like credit cards, loans mobile phone bills and utilities to build up your score. However, if you fall into the habit of regularly defaulting on payments and falling into arrears, you will see your score fall and fall – and you will have to make numerous payments on time in order to build it back up.
If you are in the ‘bad credit’ bracket, there are indeed loan options available to you, but they are often characterised by extremely high APRs – with credit cards available at 0% to 8% for good credit scores and 28% to 36% for bad credit scores. Other options include using collateral which could be at risk, and borrowing against your car, jewellery or property at low rates of interest but the underlying risk that falling behind could see it being repossessed.
Whilst best buys are hard to fine for bad credit loans, there are some things you can do to get more affordable finance, whether you are borrowing just £100 or £10,000.
The Longer You Borrow, The More Expensive It Is
Borrowing money for longer is more expensive because you are essentially holding the money for more time and more interest is accruing. Taking an example from a payday loans direct lender – borrow £500 over 3 months and the total to repay is £740, and borrow over 12 months, the cost is £902. Representative APR £1,081%.
Whilst many borrowers will like the flexibility of having the money for longer, there is a potential saving of £162 if you can clear your debts in 3 months instead of 12 months. Budgeting effectively can be useful here to fully determine how much you need each month and avoid overpaying on a loan.
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Repay Early When You Can
Most short term lenders offering a few hundred pounds will give you the option to repay your loan early, after a certain grace period of around 1 or 2 months – or no grace period at all.
It does depend on the product, since secured loans such as second charge loans and mortgages may incur early repayment charges if you wish to exit early.
However, the rule of thumb is that the sooner you can repay your loan, the less interest builds up, making to cheaper overall.
Consider Balance Transfer Cards
A balance transfer card allows you to move your outstanding credit card balance onto another card and the benefits are that you can move to a lower interest rate or you can consolidate multiple debts into one card.
You will have to check how much debt you can transfer and any added fees, but it is usually free and you can be charged an introductory rate of 0%, Read more about balance transfers here.
Look At The Alternatives
Whilst people with bad credit may look for a quick loan to solve their financial position, this can be further damaging. If you are being rejected and rejected, the likelihood is that it is putting hard search footprints on your credit file and this is making you even more unattractive to lenders.
If you need a few hundred pounds to help you through the month or an emergency, you will be amazed how much you can find selling household items including clothes, CDs, DVDs, games and more. Whether it is through eBay, car boot sales or other apps, you could have valuable items sitting around that you have not used in years, but others are willing to pay good money for. You may need to be a bit proactive, but it is obviously interest free and an effective way to raise money and also clear out your house!