Many people are under the impression that no credit and bad credit are pretty much the same thing. Either of these things means that you are not going to get access to the best deals when it comes to financial products. However, there are some key differences that lenders will look at when you are applying for a loan. If your loan has any of the following characteristics, then it is likely that is a bad credit loan.
Higher Interest Rate
A bad credit loan will almost certainly have a higher interest rate than those available to people with good credit. This helps to offset the losses that the lender would make if people were to default on their loan. The actual rate of interest that you will be charged will vary between lenders. If you use a price comparison site then you can search lenders that offer bad credit loans. This can help you to ensure that you are still getting the best possible deal.
Shorter Repayment Period
Many lenders have the thought process that the less time bad credits loans are outstanding for, the better. Therefore the repayment period for bad credit loans is more likely to be months than years. If you want to borrow a larger amount, then this can also contribute to the monthly payments being higher. However, for smaller amounts it can be reassuring for you as well that the loan will be paid off fairly quickly.
Security May Be Needed
In order to give the lender greater piece of mind they may ask for security before they grant the loan. This is usually something of value that the lender will be able to claim in the event of the loan not being repaid. You should think carefully before offering something valuable as security for a loan. If you are not completely sure that you are able to make the repayments then this may mean that your possessions are at risk.
A Guarantor May Be Required
Some bad credit loans will also require you to have a guarantor. A guarantor is usually someone with a good credit history that will agree to repay the loan if you can’t. If you can find a guarantor then you may be able to get access to a loan with better features. The repayment period is often longer which can bring costs down and you are usually able to borrow a larger amount. If you manage your account well and make repayments on time then your credit rating will start to improve.
Having a bad credit history does not mean that you will never be able to get a loan, but it does mean that you will probably pay more for it. If you manage this loan well then it could go some way to improving your credit score so that you qualify for more products in the future. If you have had bad credit in the past then you will need to prove yourself to lenders and unfortunately this may mean that you end up paying more in the short term.