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The Different Loans for People with Bad Credit

The Different Loans for People with Bad Credit

Not everyone who requires a loan will have perfect credit, or a good credit score, or they may have no credit at all. However, banks and lenders need to make their money through interest rates and fee, so they still lend money to people. There are many different types of bad credit loans available today, and their popularity has significantly increased in recent years. But, these different types of bad credit loans all have one thing in common, higher interest rates.

Guarantor Loans

A guarantor loan is a loan based on the fact the borrower has somebody to make the loan repayments if they can’t afford it. This means that if the borrower misses a payment or can only afford a slice of a payment, then their guarantor must pick up the payment on their behalf. The terms of guarantor loans and generally longer than other types of loans and borrowers can usually borrow more money than what they could with a payday loan. 

Ultimately, guarantor loans can be incredibly helpful for those with bad credit score and need a short-term financial boost. However, before you apply for your loan, it’s very important to consider how you have managed your finances in the past and how you plan to manage them in the future to make sure that you’re capable of making the loan repayments on time to avoid any defaults. In general, it’s very important not to take out a loan more than what you can afford to repay whether it’s a guarantor loan or not.

However, please do be aware that you could burn bridges with this type of loan. Finding somebody who is willing to be your guarantor may take a considerable amount of time. If for any reason you cannot afford to make a repayment it would leave your guarantor liable for the debt which could ultimately affect their own credit score. It might have been the guarantor’s decision to opt into the agreement, but it would more than likely put pressure on your relationship. One incredibly crucial thing is that you need to fully trust your guarantor

Unexpected things and unfortunate events can happen, even in the best of circumstances, so be aware of the pressure that this could put on a relationship and think about how you might tackle the situation should it arise.

Payday Loans

Payday loans are used a short-term solution when people need a financial boost of usually less than £500. Payday loans are then paid back when the borrower next gets paid from their job. The loans are based on affordability, whether the borrower has a job or not, and a valid bank account. Payday loans have had some extremely negative PR in the media recently after the companies that offer these loans have been accused of manipulating financially vulnerable people. The collapse of Wonga.com has also driven this negative PR.

Logbook Loans

Logbook loans are typically granted by using a car as the lender’s security should the borrower fail to make their repayments. The terms of logbook loans generally last up to 80 weeks. However, if you are able to pay the loan of soon then you are required to do so. And, if at the end of the loan agreement you haven’t repaid what you should have each month then you expected to the total outstanding amount.  Before taking out this type of loan, you must ensure that you know the ins and outs of the agreement and make sure that you can afford the repayments.

Rent-to-Own Loans

These shops and stores allow buyers/borrowers the ability to pay on a regular basis (normally weekly) for their purchases which are typically electrical household appliances and furniture. With these type of loans, the weekly payments may seem pretty low when you think about it in the short term. But, if you look at the long term using rent-to-own loans can be so much more expensive than buying the product outright.

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