If you have a poor credit rating, it is unlikely that you will be awarded finance, credit or any type of loan through regular banking or financial channels. This is due to the fact that people with bad credit are in this situation because they have defaulted in payments to creditor or loan providers in the past. They therefore pose a greater risk to the loan provider that a loan will not be repaid, in full, or on time.
Loans for people with bad credit take this risk factor into consideration by charging higher interest rates and other fees. In other words, if you are unable to make your repayments on time, the loan provider simply profits from the additional charges.
However, if you default on the loan, they will take measures to reclaim their funds using debt collectors or attaching you goods for sale.
So who can apply for loans for people with bad credit?
1. No Credit Rating
If you have never been awarded a loan, credit or finance, you will have no credit rating. This means that financial institutions will have difficulty in evaluating your risk as a client and may therefore not provide you with a loan. A bad credit loan is a good way to get your credit rating started.
However, it is advisable to only apply for a loan in a small amount that you can repay quickly and easily. If you cannot meet your monthly repayments on time, you will start with a bad credit record.
2. Bad Credit Rating
Just because a loan company provides bad credit loans does not mean that they simply won’t check your credit record and approve a loan amount. The worse your credit rating is, the less likely it is that your required loan amount will be approved.
A bad credit loan provider may lower the amount that they will give you, increase their interest rate or even charge you additional fees. They may also require some kind of security in the form of collateral (cash or an asset that they can claim if you default on your debt) or for someone to cosign the loan.
If your loan is denied, you may want to take steps to improve your credit rating. Pay off one debt at a time or renegotiate the terms with your existing creditors. The more often you make payments on time, the better your credit rating will be.
3. A Blacklisting
You will be blacklisted by a creditor if you have failed to make a payment for a specific period of time. They will inform you that you have been blacklisted and may also take legal action against you.
In this case, it is best to approach bad credit loan providers who do not check your credit rating to have a loan amount approved. Alternatively, you can take steps to have the blacklisting removed. You will need to settle the debt in full, inform the relevant credit agency of the settlement and then wait a few months or even years for the blacklisting to be cleared.