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118118 Money Team  •  September 29, 2023

In today's financial landscape, it's easy to feel excluded if you have a less than perfect credit history. However, there are ways to navigate and secure a loan even if your credit isn't stellar. Understanding your options and the world of bad credit loans can help you make informed decisions.  

What Are Bad Credit Loans?

Bad credit loans, an iteration of a personal loan but designed to cater for those with a less than perfect credit history, are financial solutions specifically designed for individuals who might not qualify for traditional financing due to poor credit histories.

An unfavourable record could be a result of several factors, including missed repayments, defaults, county court judgments (CCJs), or even past bankruptcies. These missteps can often lead to closed doors when it comes to traditional banking and lending institutions. However, this is where bad credit loans can help.

Bad credit loans are tailored to assist those with these lower scores. Such products offer a lifeline, ensuring that individuals with bad credit scores aren't left stranded when they need financial assistance. While these loans offer an opportunity, they often come with higher interest rates to compensate for the increased risk lenders take on by extending credit to those with past financial missteps. However, if used responsibly, bad credit loans can not only meet immediate financial needs, but also serve as a stepping stone towards rebuilding one's credit reputation. Borrowers can use these loans as a tool to gradually enhance their credit scores, paving the way for better financial opportunities in the future.

Why Choose a Direct Lender for Bad Credit Loans?

Choosing a direct lender for bad credit loans, like 118118Money.com, comes with many advantages.

1. Direct Communication

   A primary benefit is the direct line of communication. Without intermediaries, there's no risk of miscommunication or loss of vital information. Everything from queries to grievances can be addressed directly, ensuring a smoother and more personalised experience.

2. Quicker Application Process

   Without the need to liaise with third parties, the application process is significantly expedited. A direct lender typically has a streamlined system that allows for a rapid review and response, ensuring you get a decision faster.

3. Transparency

   Direct lenders often have a clearer and more transparent loan processing system. There's less fine print to worry about and fewer hidden fees, as everything is dealt with in-house.

4. Personalised Rates and Offers

   Due to their unique positioning, direct lenders often have the flexibility to offer custom-tailored rates or promotions based on individual profiles, loan amounts, or loan durations. This personalisation can lead to better terms and a loan that's more in sync with a borrower's needs.

5. Soft Credit Search First

   One of the standout features of 118118Money.com is the initial soft credit search. This approach ensures that your credit score isn't negatively impacted right out of the gate. Instead, you'll only experience an effect on your score once you're confident of approval – a feature not always guaranteed with other lending channels.

6. Data Security

   Dealing with a direct lender minimizes the number of hands your personal and financial data passes through. Fewer channels mean reduced risk of data breaches or misuse of sensitive information.

Features of a bad credit loan

For many individuals, having a poor credit score can feel like carrying a heavy weight, often limiting financial flexibility and opportunities. Loans tailored for bad credit can offer a ray of hope and several benefits. Here's an expanded look at the advantages:

1. Credit Score Improvement

   One of the significant features of a bad credit loan (or any personal loan) is the chance they can provide for credit score rejuvenation. By regularly and promptly repaying these loans, borrowers can demonstrate financial responsibility and gradually repair and enhance their credit scores.

2. Financial Breathing Space

   Financial emergencies can strike anyone, regardless of their credit score. During such trying times, bad credit loans can act as a much-needed lifeline, ensuring that you don't get further entangled in financial woes.

3. Flexibility

   With options like those provided by 118 118 Money -- which range from £1000 to £5000 for personal loans - borrowers are empowered to select the amount that precisely fits their requirements and affordability needs. This flexibility ensures that individuals don't borrow more than they need, promoting healthier financial management.

4. Tailored Solutions

   Bad credit loans are crafted with the borrower's unique situation in mind. Whether it's the repayment terms, the loan amount, or the interest rate, lenders often try to tailor their offers to make them as suitable as possible for the borrower.

5. Empowerment and Autonomy

   With the availability of bad credit loans, individuals aren't forced to rely on friends or family in times of financial need. This independence can be mentally and emotionally empowering.

6. Quick and Straightforward Process

   Many bad credit loan providers, including 118 118 Money, streamline their application processes to ensure quick decisions – which is crucial when facing immediate financial needs.

How to Qualify for a Bad Credit Loan?

 Let's delve deeper into what it takes to qualify for a bad credit loan:

• Residency and Legal Status

  The primary requirement is being a legal resident of the UK. This assures lenders that you are under the jurisdiction of UK financial regulations, which offers a layer of protection and compliance on both sides.

• Age Requirement

  To apply for a bad credit loan or any other loan agreement in the UK, individuals must be at least 18 years of age.

• Stable Source of Income

  While bad credit loans are designed for those with imperfect credit histories, lenders still need assurance that borrowers have the means to repay the loan. Demonstrating consistent income – whether from employment, self-employment, or other stable sources – is pivotal.

• Current Financial Status

  Apart from your credit history, lenders may also examine your current financial situation. This can include checking for existing debts, monthly expenses, and other financial commitments.

• Communication Channels

  Some lenders might require you to have a valid email address and mobile phone number. This ensures they can easily communicate with you throughout the duration of your loan.

Meeting these qualifications does not guarantee approval, but it's a starting point. Lenders will still need to assess the overall risk associated with granting a loan. But by meeting these criteria, potential borrowers are on their way to securing the financial assistance they seek.

Types of Bad Credit Loans Available

There are several types of bad credit loans tailored to suit the diverse needs of individuals with a less-than-perfect credit history.  

1. Personal Loans for Bad Credit

   These are unsecured loans, meaning they don't require any collateral. They're ideal for various purposes, be it consolidating existing debts, funding a significant purchase, or covering emergency expenses. 118 118 Money offers a range within this category, allowing borrowers to access amounts ranging from £1000 to £5000. What’s more, they come with fixed repayment terms to avoid unpredictable fluctuations.

2. Credit Cards for Bad Credit

   For those keen on rebuilding their credit, these credit cards serve a dual purpose. They offer a line of credit, often when other standard cards might be out of reach, while simultaneously providing a platform to demonstrate responsible credit behaviour. 118 118 Money offers credit cards for those with bad credit, with limits ranging from £250, perfect for those just starting on their credit repair journey, up to a more flexible £2000 limit.

3. Guarantor Loans

   While not directly offered by 118 118 Money, it’s essential to understand this type. These loans require a guarantor - someone who agrees to repay the loan should the borrower be unable to. If you choose to apply for a loan with 118 118 Money, we will never ask for a guarantor, all our loans are on a no-guarantor basis. 

4. Secured Loans

   Unlike personal loans, these are backed by an asset, often a property or a vehicle. They can be an option for those who might not qualify for unsecured loans due to their bad credit. The risk, however, is that the asset can be repossessed by the lender if repayments aren't met. All 118 118 Money loans are unsecured, meaning your assets are not at risk. 

5. Payday Loans

   Short-term, high-interest loans meant to be repaid by the borrower's next payday. They can provide immediate funds in emergencies but come with high risks due to their high APRs and short repayment periods. 118 118 Money don't offer payday lending, however our loans can be viewed as an alternative to payday loans if you require a loan from 12-60 months from £1000 to £5000. 

With 118 118 Money’s offerings, many find a compassionate partner willing to provide a stepping stone towards financial stability.

Interest Rates and Repayment Terms

When navigating the world of bad credit loans, understanding interest rates and repayment terms is crucial. These elements will directly impact how much you repay over the loan's duration.  

1. Bad Credit Loans have High Interest Rates

   The reason for this is straightforward: lenders view individuals with poor credit history as higher risk. The elevated interest rates are set to counterbalance this risk. If a borrower were to default, the lender would have some cushion due to the accrued interest from these types of loans.

2. Differentiating Between APR and Interest Rate

   It's vital to distinguish between a loan's interest rate and its Annual Percentage Rate (APR). While the interest rate indicates the cost of borrowing the principal loan amount, the APR reflects the total cost of borrowing on an annual basis, incorporating fees and other associated costs. At 118 118 Money:

• • Personal loans have a varirety of APRs. This means that over and above the principal amount, a borrower would pay an annual rate in this range, factoring in interest and other associated costs.
  • For credit cards, the APR varies from 24.9% to 49.9%. This range is more than just the interest, as it captures the comprehensive cost of utilizing the credit card over a year.

3. Impact of Rates and Terms on Total Payback

   When considering a loan, always calculate the total amount repayable, including interest. For instance, a £2,000 loan at an APR of 29.9% over three years will lead to a different total payback than the same amount at an APR of 79.9%.

How to Apply for a Bad Credit Loan?

Navigating the loan application process, especially with a less-than-stellar credit score, can be daunting. However, with direct lenders like 118 118 Money, the pathway is designed to be clear and user-friendly. If you’re considering applying for a bad credit loan, here’s a step-by-step guide:

1. Research and Decision Making

   Before diving in, it’s essential to understand the kind of loan that suits your needs. With options like personal loans and credit cards for bad credit available, evaluate what fits your current financial scenario and repayment capacity.

2. Visit the Official Website

   Always initiate your application from the official website of the lender to ensure security and authenticity. 118118Money.com provides a seamless online experience with all necessary details and tools at your fingertips.

3. Select the Desired Loan Type

   Based on your prior research, choose the kind of loan or credit card you’re interested in.

4. Fill in the Application Form

   This is a crucial step. Ensure all details are accurate. Inaccuracies or missing information can delay or hamper the approval process. At 118 118 Money, the application will typically require personal details, employment information, and financial data.

5. Understand the Soft Credit Search

   One of the standout features of 118 118 Money is the soft credit search. It gives you peace of mind, ensuring your credit score isn’t affected during the initial assessment. This search will determine your eligibility, allowing you to proceed with confidence.

6. Wait for Feedback

   After submission, there's a reviewal process. During this time, the lender evaluates the information provided against their lending criteria. With 118 118 Money, this process is efficient, ensuring applicants aren’t left in limbo for long.

7. Approval and Fund Transfer

   Once your application is approved, the final steps involve agreement and fund transfer. Ensure you understand the terms and conditions, interest rates, and repayment schedules before finalizing. Once everything is in place, 118 118 Money typically transfers the funds swiftly, ensuring you can address your financial needs promptly.

8. Stay In Touch

   After the application process, it's vital to maintain communication with your lender. Whether it's for understanding the repayment schedule, seeking clarifications, or updating personal information, a clear channel with your lender helps in smooth loan management.

Tips to Improve Credit Score

Your credit score is a dynamic figure, reflecting your financial discipline and trustworthiness in the eyes of lenders. An improved score can open up avenues to better interest rates, higher credit limits, and more favourable terms. Here’s are tips on how to rejuvenate your credit score:

• Consistent Repayments

  Perhaps the most critical factor in your credit score is your history of repayments. Ensure you make timely repayments on all your debts – be it loans, credit cards, or utility bills. Setting up direct debits or automated reminders can assist in ensuring you don’t miss a payment.

• Limit Credit Card Usage

  While credit cards can be useful financial tools, mismanagement can affect your score adversely. Aim to utilize less than your full credit limit. Maxing out cards or even utilizing a large percentage of your available limit can signal financial distress.

• Review Credit Reports

  Obtain a copy of your credit report from credit reference agencies. Regularly reviewing these reports and reporting any errors promptly can lead to corrections, thus aiding in a potential score boost.

• Avoid Multiple Credit Applications

  Every time you apply for credit, it can leave a "hard" enquiry mark on your report, which may reduce your score. If several applications are made in a short time, it might give lenders the impression you’re in financial trouble; hence, it’s wise to spread out your credit applications.

• Register on the Electoral Roll

  Being registered on the electoral roll provides proof of your address to lenders and can be seen as a sign of stability. This can be a simple but effective step in enhancing your score.

• Handle Old Debts Wisely

  Paying off a debt doesn't erase it from your credit report immediately. However, over time, positive behaviour can overshadow past financial missteps. If you've successfully paid off old debts, it shows your financial turnaround.

• Limit Unnecessary Borrowing

  It's always advisable to only borrow what you need and can afford to repay. Every debt you take adds to your financial responsibility. Before taking on additional loans or credit, assess the necessity and your ability to repay without stressing your finances.

• Seek Financial Counseling

  If you're overwhelmed by debts and aren’t sure about managing them, seeking financial counselling on budgeting and debt management can be a step in the right direction.  

Conclusion

Bad credit shouldn't be a perpetual financial roadblock. With understanding and strategic decision-making, options like those from 118 118 Money can offer a lifeline. Whether you're seeking a personal loan or a credit card to build your score, there's a solution awaiting. Remember, with every repayment, you're not just clearing debt; you're rebuilding your financial future.