Bad Credit Financing in the UK

Not all people or businesses are fortunate to have high credit scores. As a result, they tend to have a lot of difficulty finding money in the formal finance sector. Still, there are options for bad credit loans available to them. Some of these choices tend to be rather expensive and may make your financial situation a lot worse. Here we will look at these options for bad credit loans in the UK and offer direct lenders and other options available to you.

A bad credit score can be a nightmare especially when you need a loan. Most lenders will turn you back unless you produce a good collateral. Still, it is possible to get financing albeit at a high interest rate. Your goal should be to borrow money at a low interest rate and pay it back on time. Make sure you can don’t enter into a debt-trap.

If you have a bad credit score, it means that you have defaulted on your obligations before. It also means that you can do it again. Therefore, lenders will always place a higher interest rate on you. These rates may be as high as 100% in what is known as subprime lending.

Online Lenders for bad credit financing

The first option that you have is to use online lending companies. There are many of such companies. There are many online companies for bad credit in the UK. Some examples bad credit loans from direct lenders for businesses are:

Examples of companies offering bad credit personal loans include:

These companies for consumer loans are not cheap and you can easily enter a personal debt-trap. Cashfloat has an average APR of 997% while Drafty has an APR of more than 87%. We recommend that you compare multiple payday loans at ChooseWisely.

Why Do People Look for Bad Credit Loans?

  • Most people search for real needs such as bad credit financing for cars or a computer. We are pretty sure there are good alternatives instead of bad credit finance. Second hand laptops and private car lease often end up being a lot cheaper options.
  • A lot of other people are looking for a way to finance their new iPhone, an engagement ring, or even plastic surgery. These things are often not really needed and you can find cheaper alternatives.
  • People also look for bad credit financing for TV, mattress, or other types of furniture. Yet there are also others again looking for financing options for bad credit for UK businesses. One of the options for bad credit loans for businesses is invoice financing with companies such as NatWest Rapid Cash, SME Loans, and Market Finance.

Most common types of loans for bad credit are the following.

Bad Credit Loans with Secured Loan

Another option that you have is to use secured loans. A secured loan is one that has a collateral. The collateral could be any type of asset such as a house, car, or even piece of land. With a secured loan, most lenders will be glad to lend you money. This is simply because they are sure that you can pay. If you fail to pay, the lenders will just take the collateral and sell it. Most banks like Barclays, HSBC, and Royal Bank of Scotland (RBS) will be glad to lend you money.

Bad Credit Loans with Co-Signer

If you have a bad credit score in the UK, another option that you have is to use a co-signer. A co-signer is also known as a guarantor. A bad credit loans with guarantor means there’s another person who agrees to sign the loan for you. The person should be a member of your bank. He should also have a good credit score. By agreeing to be your guarantor, the person is indirectly telling the bank that he is ready for any eventuality. If you default on the loan, the bank will just deduct the funds from their account. Co-signer loans usually have a lower interest rate.

Bad Credit Loans from Credit Unions

If you have a bad credit score, you have the option of getting bad credit loans from a credit union. A credit union is a member-owned organization that serves them. Most credit unions look at credit scores because they want to give loans to good borrowers. However, you can approach the one you belong to. In most cases, they will give you money if you have a long track record with them. Some of the biggest credit unions in the UK are Greenwich & Bexley, Crownsavers, and Lewisham + Bromley Credit Union among others.

Crypto-Backed Loans

The latest option for you to borrow money if you have a bad score is to take crypto-backed loans. These loans are ideal if you own some cryptocurrencies. The idea is to give the company your crypto in exchange of the loan. Two of the best crypto loans are Nexo and CoinLoan.

How to Improve Your Credit Score

Now that you have a bad credit score, your goal should be to improve it. Here are the four main ways of improving your credit score in the UK. There are many ways to improve your credit score. These are:

  • Register where you live. A good way of doing this is to register as a voter.
  • Build your credit history. You can do this by borrowing little amounts of money and paying it back.
  • Make payments on time. Always pay your loans on time. This will reflect well on your credit scores.
  • Maintain credit utilization rate low. This is the percentage of you use on your credit limit. If you have a credit limit of $1,000 and you have used $500, it means that your rate is 50%.

What is a Credit Score?

  • Banks and direct lenders want to know if you can pay back the loan. They check your credit score, especially when they are giving you unsecured loans.
  • A credit score is a number three-digit number that tells your financial status. It gives a snapshot on whether you are able to pay your loans. All banks and lenders check your credit score especially when you are taking an unsecured loan. An unsecured loan is one that has no security or collateral. The banks and lending institutions receive this data from companies known as Credit Reference Agency (CRA).

How CRAs Work

Your credit score is calculated in a very simple way. In short, banks and other entities submit your data to Credit Reference Agencies (CRAs). In the UK, there are four main CRAs, which are Experiean, TransUnion, Crediva, and Equifax. These are the biggest CRAs in the world. For example, whenever you apply or get a loan, this information is sent automatically to these companies. In some situation, other data is also sent. For example, some landlords are known to send this data to these companies. After receiving the data, they use various scientific calculations to calculate your score. This score is usually a three-digit number. A high number is given to people who have a good record while a lower number is given to people with a poor track record.

Credit Scores Range in UK

There is no universal credit score range in the UK. This means that your score will be different among the four companies. You might have a score of 700 in Experian and 500 with TransUnion. There are two main reasons for this. First, not all lenders submit your transactions to the agencies. Second, the four companies use different methodologies to calculate your score. In general, a score of between 0 and 550 is said to be poor while a score of between 551 and 565 is said to be poor. A score of between 566 and 603 is said to be fair while that of between 604 and 627 is said to be good. A score of between 628 and 710 is said to be excellent. These numbers are summarized below.

The implication of these numbers is very simple. Most banks and online lenders will be happy to lend you money if you have an excellent score. The interest rate will be relatively small in this case. Very few banks will extend financing to you if you have a poor credit score.

Please note: Under GDPR rules, all credit bureaus must give you your credit score for free any time. You can get the score by simply visiting their websites or by using their mobile applications.

Causes of Bad Credit

Now that you know what a bad credit score is, it is important that we look at the main causes of such scores. Here are the top causes of bad credit in the UK.

  • Identity theft. Hackers can hack your bank account or credit card and borrow without your knowledge.
  • Failure to pay. If you borrow and fail to pay, it can lead to a bad credit score.
  • Failure to pay on time. Some lenders will delay to submit your details to CRAs. However, a habit of not paying your loan on time can make you have a bad score.
  • Having no credit history. If you have never borrowed money, it can make it difficult for banks to trust you.
  • Filing for bankruptcy. If you file for bankruptcy, you will definitely be blacklisted.

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