Bad Credit Loans: what are they and how can they help you?

summary:

“…A bad credit loan is a type of personal loan offered to borrowers with weak, bad, or no credit scores…”

“…There are two basic types of bad credit loans: secured and unsecured.”

“…A secured bad credit loan requires that the borrower use a valuable asset—like a car, a home, or a piece of jewellery—as collateral to “secure” the loan…An unsecured bad credit loan means that you, the borrower signs a contract and promises to repay their loan according to the terms and conditions of their loan.”

Do you need a personal loan and have bad credit? But have bad credit? What are your options?

Do you need a Personal Loan but don’t have the right credit score to qualification? Are you living paycheck to paycheck? Do your finances need a hefty boost in the right direction? With a crippling economy, high debt repayments and the constant rise in expenses people’s incomes have plummeted while prices increase at astonishing rates. South Africans are looking for alternative ways to better their credit score as well as their loan opportunities.

Receiving a poor credit rating or being black-listed as a poor credit risk can be a serious matter, especially if you are looking to take out a mortgage or personal loan in the future. Having a bad credit rating makes you a high risk to lenders. They then moderate your risk by charging you higher interest rates or refusing your application for a personal loan altogether. Rejected loan applications can do further damage to your credit score, which can affect your future loan applications. This makes borrowing money for the things you want most feel almost impossible – offering only bad credit loans to those with high scores.

What is My credit score? And how do I know if it is good or bad?

Where does your credit score fall? And what loan do you qualify for? A Bad Credit Loan or a Good credit loan? These are all questions that can only be answered with your credit score. Generally, a FICO score below 630 is considered bad. However different lending institutions have different variables which apply to their borrowing system. To take a look at your current credit score, with our partners at Free Credit Score who can assist you in seeing your score and all the unique insights that make it up for absolutely free.

What is a Bad Credit Loan?

A bad credit loan is a type of personal loan offered to borrowers with weak, bad, or no credit scores. Often referred to as blacklisted loans these bad credit loans are generally more expensive. This is because lenders charge higher interest rates to borrowers with bad credit than they do to borrowers with good credit. This is because those with good credit scores are more likely to pay them back.

There is one way to secure a bad credit loan as the borrower; offer up security in the form of one of your currently owned assets; your home, equity in your home or even your vehicle.  This is risky for you as the borrower since if you do not keep up with the repayment you may be facing repossession. On the other hand, offering up an asset provides a sense of security to the lender, allowing you to secured a personal loan with bad credit at a lower interest rate too.

However, even bad borrowers have options – There are two basic types of bad credit loans: secured and unsecured.

Secured

A secured bad credit loan requires that the borrower use a valuable asset—like a car, a home, or a piece of jewellery—as collateral to “secure” the loan. This means that if you, the borrower is unable to repay the loan, the lender is legally allowed to seize the collateral and sell it to recoup their losses. These are also known as payday loans.

Secured Bad Credit Loans are Ideal for People Who:

  • Own their homes or vehicles
  • Have been refused unsecured credit by their bank
  • Are blacklisted and cannot pass an ITC check
  • Need a larger amount of credit than the one that is offered by an unsecured loan
  • Have sufficient monthly income to repay a loan
  • Want to consolidate their debts and have sufficient income to repay the new loan


Unsecured

An unsecured bad credit loan means that you, the borrower signs a contract and promises to repay their loan according to the terms and conditions of their loan. If they fail to repay their loan, the lender may pursue collection of the money owed through a collections agency or other legal mechanism.

Unsecured Bad Credit Loans are Ideal for People Who:

  • Are blacklisted or have bad credit
  • Do not own their own homes or vehicles
  • Do not want to offer up security in exchange for a loan
  • Need a small amount of money
  • Have been refused a loan by a bank
  • Have sufficient income to make payments on a new loan

How your credit score works

Your credit rating comes from an assessment of numerous factors. These include

  • Missing payments
  • Making late payments
  • Skipping payments
  • Exceeding card limits
  • Being careless about your bills
  • Making multiple credit applications at once
  • Having no credit history (e.g. having never applied for a credit card or loan before) can sometimes be considered “bad” credit by some lenders, and can limit your lender’s ability to predict whether you’ll be able to repay a credit card or loan. Take a look at our article on good credit.

What you need to qualify for a Bad Credit Loan

In order to qualify for a bad credit loan, you must be a South African Citizen with a green bar-coded ID or a smart ID card. You need to be at least over the age of 18 (some lenders require applicants to be over 21) and have a monthly income that exceeds R 3,000.00.

If you have bad credit, then you are familiar with the obstacles a low score can bring. However, you don’t have to live with bad credit forever – there are ways to repair even the most damaging credit score.

How to improve a bad credit rating:

  • Keep up to date with repayments and bills
  • Keep a regular job and residence
  • Build up your savings
  • Clear existing debts and avoid new debts
  • Correct any errors/inaccuracies on your credit report

Taking out a bad credit loan is a big decision but so is picking the right financial partner who lends it to you. We at QuickCredit focus on your ability to repay what you borrow. We’ll work with you to set a flexible affordable repayment plan that works comfortably for you and your wallet.