Many lenders now specialise in loans for those with a bad credit history, no guarantor and their only form of income is from benefits.
As long as you have a regular income, there is no reason why you won’t be able to successfully apply for a loan. So, what are the other factors to consider?
Interest Rates on Bad Credit Loans
As you will find when applying for loans with a bad credit history and no available guarantor, there is no one size fits all package. The length of the loan and the interest charge will reflect the underlying circumstances of the borrower.
On occasion, you will see that long term loans will attract a reduced interest rate because they are often seen as more affordable. So, in many ways, it pays to resist the natural temptation to repay your loan as soon as possible and possibly overstretch your finances.
Do Benefits Count As Regular Income?
As benefits are paid by the government, it could be argued that this type of income is more secure than many others, in the eyes of a lender, the more secure your income, the less risk assuming that the loan is affordable.
This then brings us onto the need to put together a budget for your household expenses which is both realistic and leaves sufficient funds to cover loan repayments.
There is a general misconception that lenders servicing those deemed high-risk will approve all applications and simply adjust interest rates. The fact is that if you can’t afford the loan repayments, you would be rejected.
How Do I Prove Loan Payments Are Affordable?
Before you apply for any loan, you need to work out your income, expenses and surplus funds which could be used to cover loan repayments. In many cases, it is then a case of working backwards from what you can afford on a monthly basis and what this translates to for a short, medium or long-term loan.
You will tend to find that lenders would prefer you to be more cautious than optimistic, look more long-term than short-term when seeking finance. Why?
Let us assume that you opt for a short-term loan with relatively high monthly payments which you can just about afford. This may mean reducing expenditure in certain areas to leave enough surplus income to cover repayments.
The problem is the tighter your budget, the more chance of being blown off course by an unexpected additional expense further down the line. This could be something as simple as your washing machine breaking down, your car failed its MOT or even relatively inexpensive house repairs. If your budget is tight, then this could place real pressure on your finances.
Choosing the Best Loan for You
The vast majority of people are not comfortable with personal loans, especially those which attract relatively high interest. Where a loan is required, the natural reaction is to go for as short a term as possible so that you can pay off the loan as quickly as possible.
Interestingly, you will find that many lenders would prefer you to be cautious, to be more conservative and leave a buffer between your income and your overall expenses, including loan repayments.
The greater the buffer between total living expenses and income, the less risky you would be considered by a lender.
On the flip side of the coin, the longer your loan, the more interest you will pay so there is a need to find a balance between an affordable loan term and total interest paid.
In reality, many lenders will be able to help you with regards to fine-tuning your budget because it is in their best interest for you to maintain repayments.
We have written extensively about the different types of personal loans available and you can read all the details here, ‘Our Guide To Understanding How Much You Can Borrow For A Personal Loan‘.
How Can I Improve My Credit History?
Before you can even begin to improve your credit history, you need to understand how the system works. For example, all entries on your credit file will remain live for six years. This means that even if you have relatively stable finances today, your financial challenges/troubles of six years ago will still be impacting loan applications.
In some cases where for example your last financial troubles occurred five years and six months ago, you may be able to negotiate slightly improved terms with a lender – although this is not always the case.
The fact that you have experienced significant financial troubles in the past indicates that, fairly or unfairly, this could happen again. Therefore you will be perceived as a greater risk than someone with a clean credit history.
When it comes to actually improving your long-term credit history, there are a number of actions you can take:-
- Ensure that no repayments are missed going forwards
- Successful credit applications, even if the funds are not used, can reflect the financial strength
- Opening additional current/savings accounts can help
In many ways, the credit at your disposal is a reflection of your financial strength which, coupled with regular payments, can prompt a gradual improvement in your credit rating.
What if My Finances Improve?
For many, the whole idea of taking out finance when they have a bad credit history, no guarantor and a reliance on benefit income is to improve their financial situation in the longer term.
If slowly but surely you see an improvement in your finances, you are able to make all repayments going forward and experience an upturn in your income you may be able to refinance your debts.
While there is no hard and fast rule regarding interest rates for those with bad credit histories, you will be talking well into the double digits and possibly beyond. So, looking further ahead and refinancing high-interest debts on a much-reduced interest rate can create huge cost savings.
For those suffering short-term financial difficulties, relatively high-interest loans are often their only source of finance. In a perfect world, this would be a short-term solution allowing borrowers to get their finances back in order and back on their feet.
If finances remain stretched and there is no improvement in your situation, then it may be time to look at the numerous debt management options available.
How Can Flexy Loans Help?
Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.
They have already helped thousands of people get loans already, and they can do the same for you.
Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you. All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.
To apply and see what loan is available to you, click on the below and answer the question