Adverse Credit Loans

At some point in our lives we may need to borrow money, either to buy a car, pay for a wedding or even to redecorate our home. In order to receive this money we will have to apply for some sort of loan from a financial institution.

There are however, a number of factors that can affect your loan application. When you apply for the loan, the lender will normally carry out a credit check on your personal circumstances to calculate the level of risk that you pose to them. If you have applied for a number of loans or credit/store cards within a short period of time previous to applying for this loan, this will damage your credit score as the credit check will tell the lender this.

The credit check is based on your credit history. It is a record of all past financial commitments and your pattern of repayment, as well as an overall look at your total debt load. Credit reference agencies use this information to assess your credit worthiness and assign a credit score. Lenders then use the credit score as a factor in deciding whether or not to offer you the loan. A borrower can get his/her credit report from any of the credit rating agencies namely Experian, Equifax and Transunion. Credit report is a report containing details relating to the credit history and current status of a borrower’s credit standing. A FICO score of 620 or below is considered to be bad by the lenders. There is risk involved in lending money to people with adverse credit history, because they may make default on payments in future too.

There are a number of ways that we can obtain a bad credit history. These would include, missing a payment, making a late payment, default on a debt or failing to fulfil a financial contract or commitment. The more of these reports that the credit agencies receive, the lower your credit score will be. This would make it harder to obtain a loan. Other information that could cause a problem in your credit reports includes frequent changes of job or address or any county court judgements against you. Another factor to consider is that the credit check is actually based on your address, so if you live in a council/rented accommodation it will normally include the tenants previously residing there.

Credit arrears and mortgage arrears make up a large proportion of customers who apply for bad credit loans. Any late payment for whatever reason is recorded on your credit history. It could simply be the fact that you have been ill and not managed to get to the bank to pay your bills. Unfortunately many financial lenders do not make allowances for this. Lenders who offer bad credit loans accept that these things happen, and although being cautious will be more willing to payout your loan. CCJ's and larger credit arrears or mounting mortgage arrears are a little more serious.

There are however, an increasing number of lenders who will consider offering a loan to people with a bad credit history. You will generally pay a higher rate of interest because of this and would normally only be offered a small loan. However, once you have secured a bad credit loan, over a period of time you will be able to improve your credit score by showing regular repayments of the loan.

There are two types of bad credit loans, a secured loan and an unsecured loan.

Secured loans use a form of collateral for the loan, normally your property. The lender will determine how much they will lend you, their interest rate based factors such as your credit score, the value of your home and your overall debt load. Different lenders will use these factors differently and some may consider other factors as well.

Unsecured bad credit loans are very difficult to obtain. They represent a very high level of risk for the lender, so they are obviously more cautious about offering this type of loan.

Another type of loan to obtain is an adverse credit debt consolidation loan. This is an effective management tool and is designed specifically for people who have a bad credit rating. This loan will consolidate all your debts into one manageable and affordable loan and offer better rates. The lender will deal with all your creditors and you will be accountable to only one low monthly payment on the single loan. A borrower with an adverse debt consolidation loan can borrow any amount ranging from £5,000 to £250,000.

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