No one wants to end up with a poor credit score, but of course, life happens – you might miss a few payments in relation to a particular financial obligation you have, or you may have undergone certain financial difficulties many years ago that are still keeping your credit score low now.
Warning: High-interest rates on bad credit loans can lead to significant financial strain if not managed responsibly.
So, if you do have bad credit, does that mean you can wave goodbye to any prospect of being approved for a loan? The short answer is “no, not necessarily”. Contrary to certain long-held perceptions, there isn’t any credit “blacklist”.
What a bad credit score will almost certainly do, though, is make it harder for you to get approved for a loan. And if you are granted a loan, the terms probably won’t be as favorable as what someone with a good credit score would be able to obtain.
Remember, even if you have a poor credit score, it's important to consider your ability to repay a loan before committing to one. For help, go to MoneyHelper.
Yes, you read that correctly; the term “bad credit loan” doesn’t have any formal, legal, or official status. It is simply used to refer to loans that people with bad credit are able to get approved for.
So, how exactly do bad credit loans vary from the loans that are typically available to people with better credit scores? One obvious difference is that they tend to have higher interest rates, as well as other restrictions. After all, a loan applicant who has a poor credit score will be seen as representing a higher risk to prospective lenders, so those lenders will not wish to be left out of pocket, whatever happens.
All of this, in turn, means that if you are someone with a bad credit score who is seeking out such a loan, you will need to take extreme care. In particular, you will need to ensure you only borrow an amount that you can genuinely afford to pay back, plus the associated interest.
Bad credit loans can be useful for people who would otherwise struggle to obtain a loan for any of an exceedingly wide range of purposes, such as car repairs, home improvements, or even a holiday. But you will need to be very responsible in how you handle it, and make sure you do complete all the expected repayments in a timely manner.
If you can accomplish that, there is a bonus benefit for you: it will help you to improve your credit score, so that when you next consider applying for a loan, you will be able to do so on much more favorable terms.