It is an unfortunate fact that there are more people facing bad credit problems today than in the previous three decades or so and it is becoming more prevalent. These people are also facing the problem that the main lenders are no longer as willing to lend money to people who they consider are a bad risk. Fortunately over the last couple of years they has been the emergence of a new type of company that provide loans for people with bad credit.
They are any number of reasons why a person may have a bad credit history or score, ranging from just leaving school so no credit history, through to insolvency, others being missed payments, arrears, CCJ’s. The traditional lending companies use credit rating agencies such as Equifax, Experian, Transunion and FICO to get a credit report on the borrower and this forms the basis on which they decide to lend or not.
Companies who provide loans for people with bad credit do not rely as much on the credit report. Rather they take other factors into account such as can you afford the repayments, are you working, do you have any collateral etc. as is the norm with the financial world thee are two types of loan available secured and unsecured.
Obviously the secured loan is where the borrow has some collateral to pledge against the loan, this can be a home, a car or some other asset that has some high value. As the risk to the lender of not getting there money back is low then the interest rates charged on these loans is low, but not as low as the borrow could get if they had good credit. An unsecured loan has no collateral pledge against it and so carries a much higher risk to the lender hence the interest rates are much higher.
Now as the borrower makes repayments on time each month their credit rating slowly improves, so by taking out loans for people with bad credit the borrower achieves two objectives, they can meet their current financial needs and over the term of the loan they are improving their credit history thus making it easier to get a loan in the future.