A bad credit rating will make it hard for you to apply for a new loan at lower interest rates. Lenders will call your credibility into question if they find that your credit rating is not so good at all. It is vital to understand that your lender will not just make a decision on the three-digit score. Normally, this score helps you understand your credit rating. Lenders use their own methods to discover the risk involved in loaning you. Of course, they will charge a high interest rate if your past payment behaviour has not been so good.
While some people try to arrange a guarantor with a good credit rating to obtain funds from a lender, there is no guarantee that you will be able to qualify for competitive interest rates. Moreover, your relationship with your guarantor will also be badly affected if you fail to make a default.
Various lenders are out there that accept applications for bad credit loans without a guarantor, but they charge slightly higher interest rates. If you are looking to avoid paying high interest, you should consider the following tips:
- Keep your credit utilisation low
Sometimes, despite a good credit score, you will end up with high interest rates. Have you ever wondered why it is that? Does that mean your credit score has nothing to do with your interest rate calculations? A lender will look at the overall picture of your finances. Your three-digit credit score will not impress them because they use their own methods to calculate your credit score. Apart from that, they focus on other factors such as:
- How much debt you owe
- What type of loans do you owe
- How much credit account limit you have used
Credit card debt is very expensive. If you are running up an outstanding balance month to month, you will see brutal damage to your credit points. Interest is charged by the day, and as a result, the balance continues to go up. Lenders will be sceptical about your repaying capacity if you have used up your credit card limit of more than 30%. A high credit card limit insinuates that you often rely on debt to make your regular purchases. Your lenders will presume you to be weak with money management.
Ideally, a credit utilisation ratio should not be more than 30%. Because your credit rating is already bad, make sure it is not more than 25%. The lower the credit utilisation ratio, the better. Try to pay off your credit card debt in fell one swoop. If your budget is tight, make sure you keep making a minimum payment every month. Yet, it is recommended that you pay off more than the minimum amount.
- Put down security
Lenders do not hesitate to lend you money despite your bad credit rating when you are in need of a small amount of money. Emergency loans do not carry a larger sum, and therefore, lenders do not mind approving your application. Interest rates will be high, but the loan is paid back in full within a month, so borrowers do not worry about it. Generally, the size of the loan is not more than £1,000.
However, if you are looking to borrow a larger sum, you will have difficulty getting approval for a loan. In order to increase your chances of approval, you can arrange collateral. By putting down security, you will manage to reduce the risk on the part of the lender. Now, they have the collateral to fall back on when you make a default. However, bear in mind the collateral should be worth more than the size of the loan.
In case you make a default, not only will you lose your valuable assets, but you will also lose your credit points. It will further make it harder for you to get money.
- Make sure you do not have any outstanding debts
Maybe your credit utilisation ratio is good, but your credit report has some outstanding debts. As your credit rating is already bad, you should always ensure that you do not have any outstanding debts to pay off. Small loans are considered bad to appear on your credit report. They carry very high interest rates, so your lender will be doubtful about your capability to manage these loans along with your bad credit loans.
Avoid the following credits when your credit rating is bad
If you have any outstanding debts, you might consider using alternatives like pay weekly loans or logbook loans, but under no circumstances should you use these loans. Otherwise, you will be up to your neck in debt.
- Pay weekly loans
There are many stores that allow you to buy an item and pay the price in fixed weekly installments. Although they are advertised as if they do not involve interest payments or only minimal interest, this is not always true. The amount may seem small, but the fact is that you will end up paying additional charges like delivery fees, installation, insurance, etc. For products bought with these types of plans, the annual rates can be as high as 90%. Since payments are made weekly, the amounts may appear small. These offers are often marketed to individuals looking for alternatives like bad credit loans without guarantor, but they come with hidden costs that can add up significantly.
- Logbook loans
Logbook loans are available only for those borrowers who own cars. You can get money without further ado. The good thing about these loans is that they do not involve credit checks. However, logbook loans are very expensive. If you miss a payment, you will lose your car. A lender can repossess your car immediately as it is secured. Further, no help will be provided to you if you want to choose affordable payments. Logbook loans should be taken out only when you are in urgent need of money and absolutely sure that you will not fall behind on payments.
The final word
Bad credit loans can be qualified without a guarantor if you do not have any outstanding debts and your credit utilisation ratio is very low. If you still struggle to get the nod from a lender, you can try to put down collateral. However, there is no guarantee that the lender will agree with your proposal.
Source: technonetwork.co.in
