When you need to apply for a loan, there are a number of factors that lenders will consider. Whether you are employed, how much you earn, and whether you can afford to pay back the loan will be key factors. There is, however, one aspect that rises above all others: your credit rating.
Unfortunately, it’s all too easy for a few simple financial mistakes to leave you with a poor credit rating. A missed payment, or a mistake on a form when applying for credit. Even just sharing a home with another person who has a bad credit score can be to blame. All of these and more can negatively impact your own credit rating. If your credit rating is looking a little worse for wear, then applying for a loan can be a very difficult prospect.
However, obtaining the funds you require isn’t outright impossible. This is thanks to a raft of lenders who provide loans especially designed for people with poor credit scores. If you want to apply for this kind of loan, then the step-by-step guide below will help you do just that…
Step One: Check if you are eligible for a bad credit loan
It’s tempting to think that bad credit loans are easy to obtain, but this isn’t the case. Like any form of lending, the institutions that provide bad credit loans still need to ensure that you are a suitable candidate for a loan.
The exact requirements will vary, but you will generally need…
- To have a regular income. Some lenders will stipulate this must be from employment. However, some may consider applications from people whose income is solely derived from benefits.
- To hold a UK bank or building society account.
- To be over the age of 18.
- To have a permanent UK address.
If you can meet all of the following criteria, then you can move on to…
Step Two: Decide how much you need to borrow and how much you can afford to repay
Before you begin the application process, you need to know…
- How much you need to borrow
- How much you can afford to repay
By far the most important of these two figures is the second; how much you can afford to repay. You should carefully examine your budget and determine what you can afford to repay every month. Be pessimistic when obtaining this figure. You need to be sure that the amount you have in mind is genuinely affordable to your personal circumstances.
Step Three: Compare providers and their conditions
Now you can begin the process of looking for a bad credit loan provider. Thankfully, we’ve made this easy for you; you can compare deals right here on Bonsai Finance.
Pay close attention to the repayment terms that providers offer, as you may need to make some tough decisions. Let’s say you need to borrow £5,000, and you can afford to pay back £100 per month. Some providers may be able to provide you with a loan for £5,000, but they would require you to pay back £150 per month. Obviously, this is outside of your budget.
In this case, you have two options. You can reduce the amount you wish to borrow so it’s affordable to your budget, or you can increase the length of time you will be paying the loan back for. To continue with the latter option, you will need to find a provider who is willing to lend to you for a longer period of time. That’s the benefit of comparison with Bonsai Finance! You can quickly see an at-a-glance guide as to which providers will offer the terms and conditions that are beneficial to you.
Step Four: Run a ‘soft search’ application where possible
Some lenders will allow you to make a ‘soft’ application prior to going ahead and applying for real.
Usually, when you make an application for credit, the lender will search your credit file. This search leaves an imprint on your credit file that can adversely impact your credit rating in future. A ‘soft search’ is not visible on your credit report. Instead, the lender uses a soft search to ascertain a likelihood of acceptance of your loan application. They will then usually advise you whether it is worthwhile proceeding with a full application and hard search.
The recommendation of a soft search is not guaranteed. In other words, a soft search may indicate a “yes”, but a hard search ultimately declines your application. Nonetheless, it’s far preferable to conducting a ‘hard’ search right off the bat. Every little helps, so opt for soft searches prior to full applications wherever possible. You should only proceed when the soft search indicates a good potential result.
Step Five: Consider adding a guarantor
If you want to increase the likelihood of your application being successful, you may want to consider adding a guarantor. A guarantor is a friend or family member who agrees to be financially liable for the loan should you default. Not all lenders offer this option, but it’s worth considering if it is available and there is someone in your life willing to perform this role for you.
Step Six: Finish your application and wait for the lender decision
If you have considered all of the above, then you’re ready to submit your application and await the results. Hopefully, your application will be approved and you can move onto the next steps of finalising the agreement.
If your application is declined, it’s important to resist the urge to immediately apply for a loan with another provider. Multiple searches of your credit report in a short time frame can adversely impact your credit score even further. You should try to wait at least three months before making a second loan application.
If you have poor credit, you may struggle to obtain lending from conventional means. However, this doesn’t mean that you’re cut off from borrowing altogether. With bad credit loans, you can obtain the loan you require, without your poor credit rating counting against you. Just follow the six steps above, and you could be improved for the loan you need very soon indeed. For more information, and to help manage your finances, please follow the Bonsai Finance Personal Finance Blog.