By Katie Johnson
We’ve all seen the adverts online and on TV saying that credit scores are no problem. And we all know that this isn’t exactly true as well.
See credit scores really affect the terms available to you. So if yours is low, it can see some loan suppliers taking advantage of you by extorting money with ridiculous interest rates. I mean, the national interest rate is obviously lower than anything an individual person is going to pay, but rates have been seen that approach 1,000% APR. This is just insane!
So how exactly do you get around this? Let’s take a look.
Understanding
Firstly you have to understand why you’re in this position and what it means. Basically, a bad credit score makes you look very risky to lenders. Bad credit is usually caused by missed/late payments, unpaid debts, defaulting on payments, etc. You might even need to fight against a mortgage company that breaks the law and threatens you.
You can fix this over time by making all payments and commitments on time, while reducing
and eliminating any debt. Now, because you are seen as high-risk, lenders will want to limit
the amount and charge more interest to cover the risk of non-payment.
Also, if you’re a student you may not have had any chance to build a credit history yet, or
you may also have bad credit. For this specific situation, check out the student guide over here.
Peer to Peer Lending
This is basically person-to-person lending. You can check into various companies and
exchanges which offer this service. Because you are being considered as an individual, there
is a bit more flexibility than being judged on your credit score alone.
The loan can also be split between multiple lenders, so again rates can be more attractive
because the risk is split. Peer exchanges can require a bit more work and wait around than
a direct lender though, so keep that in mind when shopping around.
Use a Secured Loan
A secured loan can get you much better rates than a regular personal loan. That’s because you
secure it against something of value, such as your car or home. This way if you default, the
lender can claim the item and sell it to cover any costs as well as the loan amount.
It can be a great way to get a good-sized loan with decent interest rates when your credit isn’t in great shape, but you are risking losing something important if you can’t meet the payments, so tread lightly.
Bad Credit Specialists
There are some good companies out there that specialize in dealing with customers with bad
credit. A good provider will offer small to medium-sized loans at a respectable interest rate. A
direct lender is a faster and easier process than peer-to-peer and doesn’t require anything of
value to be secured against it.
Borrowing From Family
Sometimes there is an option to borrow from friends or family. It might take a lot of asking, but the hassle could be worth it as a friend/family member might loan you the money interest-free. It’s vital not to break your trust in the relationship by failing to repay the money though, as this could destroy your relationship with the lender.
Katie Johnson is a freelance finance writer
Photo: capitalshift.com
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