At one time or another, many of us will turn to short term lending in order to get us through a difficult financial period. Maybe you need a cash injection to tide you over to your next payday because your car needs a new tyre and you use it to get to work. Or, perhaps, your washing machine has gone on the blink and with a big family, you need to keep on top of the laundry and get your machine repaired as soon as possible.
Whatever the reason you need a payday loan, the good news is that there are a number of reputable providers who offer them.
But what happens if you need to borrow money and you have a less than perfect credit history? In this case, you may find it difficult to get accepted for regular credit products.
This guide to bad credit payday loans explains what these loans are; whom they are suitable for; and where to find them, helping you make an informed decision to as whether a payday loan for bad credit may be appropriate for you.
(It won't affect your credit score‡)
What are bad credit payday loans?
Originally, payday loans were loans where you borrowed money for several days or weeks and repaid the amount borrowed (together with interest and any fees) on or around your next payday – hence the name.
Nowadays, the product has evolved and allows you to borrow money for several months, if required. So now, instead of having to repay the loan in a single lump sum, you can now choose longer-term payday loans that you can pay back in manageable instalments.
Bad credit payday loans are a specialist form of borrowing, aimed at people who have a poor credit rating or CCJ’s, IVA’s etc. Unlike some other types of bad credit loan, no guarantor is needed.
Who are bad credit payday loans suitable for?
If you have a less than perfect credit file with a history of late or missed payments on other credit you have had before. Or, you are a discharged bankrupt, have a County Court Judgment (CCJ), or an individual voluntary agreement (IVA), then it is likely that you will find it difficult to get approved for a standard loan.
That is where high acceptance payday loan providers come in – these are specialist brokers and lenders who are sympathetic to people who may have experienced financial difficulties in the past and who are willing to consider their application for a loan.
However, it is important to understand that no payday loan is guaranteed. If a lender feels it is not in your best interests to take on new credit, they will decline your application.
You should note that these providers typically charge a higher interest rate than providers of payday loans for people with good credit. This is because they are taking more of a risk in lending to you (based on your previous financial history) so need to charge more in order to cover this risk.
So, what are the benefits of a bad debt loan? Apart from the obvious benefit of being able to access cash when you are in a financial emergency, another benefit is the fact that if you repay a payday loan on time and never miss any payments, this will be recorded on your credit file and could help rebuild it.
Your credit file and bad credit
A credit file is one of the main tools used by potential loan providers to assess whether they should approve an application for credit. They also look at your employment details and other key information, too, but your credit file provides them with the most important information.
Your credit file details your past financial history (going back the last 6 years) as well as your current financial status.
By carrying out a credit check and looking at your credit history, a lender can see things such as:
- your personal details such as date of birth, current address etc.;
- how likely you are to repay any new borrowing (based on your past history);
- how much credit you have at the moment. By finding this out, they can calculate the affordability of any lending;
- if you have experienced financial difficulties before and have an IVA or CCJ;
- and so on.
The potential lender uses this information to calculate your credit score and, typically, the higher your credit score, the better your credit rating.
If you have a poor credit history – for example, you have missed or made late payments – you may have a lower credit score.
The good news is that credit scores can be improved upon. Obviously, this won’t happen overnight, but by taking out some form of credit, and, most importantly, paying it back on time, could help improve your credit rating.
We aren’t of course, suggesting that you take out a payday loan solely to help improve your credit file – this is just a potential benefit of having one.
For more ways on how to improve your credit score, read this article by Experian (who are one of the three main UK credit referencing agencies along with TransUnion and Equifax).
What to consider when choosing a bad credit payday loan product
You can find a bad credit loan payday loan provider online. When choosing a direct lender, however, do note that different lenders may have different product features and benefits – as well as lending criteria.
The two important things to bear in mind here are:
- while they may promote themselves as a bad credit payday loan provider, a lender may have quite strict criteria as to who they lend to – so you could still get refused for credit;
- the interest rate and any fees charged may differ depending on whom you get the loan from.
That is why using a specialist bad credit payday loan broker to help find you the most suitable deal may be easier. They can shop around on your behalf and match you to a loan provider whose lending criteria you meet. This means you stand a good chance of getting accepted - either way, you'll receive an instant online decision from the broker to let you know the outcome.
Using a broker also means this will cut down on the number of times you have to apply for a loan, so reducing the number of credit searches being carried out. This is because a broker may be best placed to send your business to the lender that will fit your own unique credit profile, which could also mean you're able to sort out a loan the same day.
Having lots of credit searches is a bad thing so it is best to avoid applying on multiple websites in a short period of time.
Why else use a broker?
A broker will handle the whole process on your behalf, using their expertise to find you the most appropriate product.
Look for brokers who are authorised by the Financial Conduct Authority (FCA). You can do this by checking the FCA consumer register.
Once you have narrowed down the choice of loans which may be suitable for you, compare the key features of the product, for example:
- how much the total cost of the loan will be, including any fees;
- what happens if you miss a repayment – how much will you be charged?
- is the lender easy to contact should you have any queries?
Responsible use of loans and legislation
Don’t forget to make sure that the loan you apply for is affordable. Bad credit payday loans, used responsibly, can be really useful at a time when you need instant cash. But if a loan isn’t affordable, be aware that missed payments can quickly make the debt escalate, making it spiral.
While legislation means that payday loan products are strictly regulated, with caps on how much can be charged for missed payments etc., taking on debt when you are unsure how you are going to comfortably repay it is not recommended.
We hope this brief guide to bad credit payday loans has helped you understand a bit more about the product and what you need to consider when applying for this type of loan.
If you have any questions on payday loans, please feel free to contact us at Instant Lolly – we will be more than happy to help.