When it comes to having bad credit and paying higher interest, the two are often found hand in hand. Having bad credit can put some lenders off, due to the higher risk, which will ultimately leave them with no option but to approve you for a loan with much higher interest. They will often do this for their own security. There are many ways in which you can find ways around this when applying for payday loans, to ensure you are able to put yourself in a financially stable position, regardless of your prior affordability issues.
What is ‘bad credit’ and do I have it?
What “bad credit” essential means is that your credit history is viewed negatively by companies. This will ultimately leave you in a situation where you will find it difficult to borrow money or access certain service. Each company who does a credit check will use different criteria when assessing your credit history, with some viewing you more positively than others.
If you do have a low credit score, there are several factors that have a negative influence on our credit report. These can include:
- Late payments
- Defaults
- County Court Judgements
- An IVA, DMP or DRO
- Bankruptcy
- Too many hard searches
It could also be that you simply don’t have much of a credit history for lenders to base a judgement on.
Do I Have To Pay High Interest If I Have Bad Credit?
There a various ways that you can get around the issues of paying high interest rates due to bad credit. If you are not willing to pay high rates, or you need a larger amount, there are still options out there for you to find a loan that fits your individual requirements. Even so, this comes with a price in itself, and you will have to accept higher levels of risk to progress. Options for those with bad credit include:
- Guarantor Loans. This will usually involve someone close to you, a close friend or relative, who will promise to make your repayments if you find yourself unable to do so. This dependant will then take on all responsibility for your loan repayments. If you are able to find a guarantor with good credit history, you can get a loan with better interest rates. Being a guarantor comes with risk as it means potentially losing your own assets, such as personal belongings, if you are also unable to make the payments.
- Secured Loans. This is where you use your possessions as collateral, such as your car, home, or another asset. If you fall behind on your payments, you could lose these items. Even so, collateral reduces risk for the lender, so they may offer you better rates than you might get otherwise.
- Try and improve your credit score. Your credit score is influenced by your financial behaviour. You have the power to shape it to get the loan that you desire. Even paying back loans on time can improve your credit score. The key rule to follow is to use no more than 15% of your available borrowed credit, ideally between 5%-10%, and pay it back within the designated timeframe.