Getting a loan with bad credit: Is it worth doing?

Your credit file provides information relating to your finances and each time you apply for any form of credit, that file is accessed by the provider by way of a credit check. The results from that check will allow the provider to decide whether they consider that you would be a reliable borrower or a bad risk for them to take. If they consider that your credit history is poor, they will usually be unwilling to lend. It is then for the applicant to decide on their next steps.

In order for a person to increase their credit worthiness, they must be able to provide a lender with evidence that they have made regular, consistent payments towards credit. See more information about lending through TrustTwo

The following options are worth considering:

Taking out a loan

There are providers who will be prepared to lend to those with bad credit but loans such as these tend to be more expensive as the lender perceives the risk to them to be greater. The interest rates offered can on the high side, so shop around. What some people choose to do is to take out a small loan over a short period of time to begin with. A lender will quote the interest rate as an Annual Percentage Rate or APR and the lower the figure, the less interest you will pay. It is worth noting that the rate quoted in the advertisement is not a guaranteed rate for everyone and is variable according to circumstances, so make sure that you check the APR that is on offer for you.

Guarantor Loan

A Guarantor Loan is another type of loan that may provide you with an option for borrowing at a better APR compared with a personal loan although rates would still tend to be higher compared with someone taking out a loan with good credit. With this type of loan, your guarantor would agree to make payments on the loan should you default. Your guarantor could be a friend or family member but not someone who is financially connected to you, a homeowner is ideal.

Taking out a loan can be helpful in repairing a credit score and may be worth considering.

Credit Union

If you are a member of a Credit Union, it may be worth approaching them for a loan as their interest rates tend to be a bit more favourable. You have to be a member in order for them to lend so if you are not a member and have time on your side, you could join and set up a regular savings plan with a view to obtaining a loan in the future.

Credit cards

Another option may be to apply for as credit card. Shop around for the one that suits your needs best, there are plenty of providers who will be prepared to accept your application. Using a credit card can be a good way of repairing bad credit if you use it sensibly. It can however be a temptation for many and encourage further spending but as long as you are prepared to have a disciplined approach, this can be a good option.

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