Bad credit history doesn’t mean you won’t get approved for a loan, but it might not be the type of loan you want, with a favorable interest rate.
However, if you urgently require a loan, then it might be worth your while to check out these options:
In this article:
- Bad credit loans
- Short-term loans
- Overdraft
- Credit builder card
- Secured loan
Bad credit loans
As is evident from the name, a bad credit loan is for someone with a poor credit score, which gives them the opportunity to still borrow money.
However, these loans will surely have higher interest rates. Over time, such loans can become extremely expensive to repay.
But then again, the most common loan option provides a workaround, if you have a bad credit rating.
A guarantor loan lets you nominate a friend or family to act as guarantor on your behalf (provided they have a more acceptable credit rating than yourself).
It also means, if you fail to repay, the guarantor is held liable.
Short-term loans
A short-term loan is technically a bad credit loan, but it is on a much smaller scale as compared to most other personal loans.
It is definitely an alternative to a standard bad credit loan, but suitable for those who wish to borrow a small amount.
It means you might not get the full amount you require, in case you need a bigger amount.
These loans are borrowed for a short amount of time between 2 to 12 months and usually have a high-interest rate.
Overdraft
Getting an overdraft is perhaps the most convenient form of borrowing, typically because it is an extension of your current account, rather than a completely new financial arrangement with a new lender.
There is still an application process involved where the account provider decides if they are going to grant an overdraft or not.
Even if you can depend on an overdraft for additional funds, it is actually more of a buffer rather than a dedicated form of borrowing.
This is due to the fact that you can receive a daily charge for using it. In this regard, it might not a suitable alternative unless you can pay it back very quickly and avoid related charges.
Credit builder card
If you want to improve your credit score, this option can be a good one for you.
It doesn’t necessarily let you borrow as much as a bad credit loan, but it does give you a credit limit that you can spend within.
The alternative lets you build on your credit score in a positive manner, which means the risk of loan applications getting rejected in the future is considerably reduced.
It is especially important for those who would be looking at applying for a mortgage in some years.
Secured loan
If you want to borrow a higher amount, opt for a secured loan.
It is borrowed over a much longer period with a standard interest rate. However, it means this loan is secured against a valuable asset such as your home.
It means the asset can be repossessed if you can’t keep up with payments.
Always conduct thorough research while borrowing money, so you understand the pros and cons of each alternative and can make an informed choice.
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