Times have changed; so has the perception of the lenders. Bad credit, as an obstacle in securing a loan, is a thing of the past. Now, you have many loan plans available in the market that are specially meant for bad credit holders.
What exactly is a bad credit? How does it arise? These are the basic questions that crops up in the mind of a person who is unaware of the nuances of finance. Every borrower who wants a loan must have some financial history – either he may have earlier availed some credit cards, petty loans or any such things. If the past financial record is not up to the mark, the borrower is said to have a bad credit history.
A lender who wants to judge the character of his prospective customer is always dependent on precedents that his new customer may have established in the financial market. A person who has good track record of repayments is very much likely to keep it intact. Following this philosophy, lenders rely on the borrower’s past track record. Lenders hire the services of reputed credit reference agencies and get the available financial details about their prospective customers. This helps lenders in taking a right decision.
Bad credit arises because you may not have kept the terms and conditions of the loan agreement regarding repayment to the lender. Any irregularity in repayment, bankruptcy, insolvency, County Court Judgement (CCJ) etc. , may put you in the bad books of the lenders. In such a situation, you have to rely on bad credit loans.
On the basis of the requirement of security, bad credit loans can be divided into two categories – secured and unsecured. Usually, bad credit loans are secured loans. However, some of the lenders also offer unsecured loans to bad credit holders. Unsecured bad credit loans do not require any security but involve very strict terms and conditions, like a high rate of interest, short repayment period and limited loan amount. On the other hand, secured bad credit loans are backed by a security which is usually the borrower’s home. These loans can provide you relatively easier terms and conditions depending upon the gravity of your bad credit score.
Bad credit personal loans give you a chance to work upon your credit image. If you take out one loan and repay it without any irregularity, your credit image will start improving. This will help you immensely when you go out in the market to take another loan. Lenders do take note of such positive developments.
Brits are increasingly borrowing money for various purposes – as small as paying for their groceries to as huge as buying a house. This makes many of them financially unstable and quite susceptible to financial problems. If lenders are offering bad credit loans more liberally, it is only because the number of people in this category is increasing by the day.
Many people are falling prey to loans. The costly methods of borrowing like credit cards and store cards are still very popular with the Brits. The aggregate value of transactions made on charge, credit, debit and store cards was £511 billion in the year 2006. Currently, the average interest rate on credit cards is 17.1 per cent, a whopping 11.5 percent above the base rate of interest. All these facts are, at least, partially responsible for making people fall to expensive forms of loans. Another interesting fact is that there are more credit cards in the UK than the number of people. According to APACS, the UK trade association for payments, there were 74.4 million credit and charge cards in the UK against around 60 million people in the country.
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