Bad Credit Alternatives to a Personal Loan

Credit Card Cash Advance, Payday Loan, Pawnbroker Loan, Logbook Loan

Mar 1, 2009 Asa Ghaffar

A personal loan isn't possible due to a bad credit rating. However, a credit card cash advance, Payday loan, pawnbroker loan or logbook loan may still be available.

Consumers that have either missed or made late payments on credit agreements will find it difficult to get a bad credit personal loan. This is because lenders will register this with credit reference agencies. A bad credit rating can make getting a personal loan very difficult for those with money problems.

Credit Card Cash Advance vs. Bad Credit Personal Loans

When a personal loan is not possible due to a bad credit rating, a consumer can use their existing card to get a credit card cash advance. This involves either making a withdrawal from a cash machine or using a credit card cheque. Most card providers will allow someone to use a percentage of their credit limit in this way, although it will be subject to a higher APR and further transaction charges.

Leading price comparison site, uSwitch.com, estimates that 7.3 million individuals are currently using credit card cash advances and 1 million people are using them to cover personal loan and mortgage payments. They also estimate that the average APR for cash withdrawals 29.97%. Whilst still a high APR, a credit card cash advance is a vastly cheaper alternative to a conventional bad credit personal loan.

High APR, Unsecured Payday Loans

A bad credit Payday loan is an unsecured personal loan and is available for any purpose, including holidays. Consumers with short term money problems can borrow up to £1,000 without the need for a credit check. Given that the rate of APR is £1,000, the term of a Payday loan is generally only a month. The high APR means that those borrowing money pay £20-25 of interest each month on every £100 borrowed.

Pawnbroker Loans and Short Term Money problems

A pawnbroker loan provides a secured personal loan to individuals based on the provision of collateral, such as jewellery. The term is usually up to 6 months. Pawnbroker loans are a more expensive source of borrowing than a credit card cash advance, but cheaper than Payday loans and logbook loans. They charge a high APR of 8% per month or £8 per £100 borrowed

Can Money Problems be Overcome with a Logbook Loan?

Consumers with a bad credit rating and money problems could see whether taking out a logbook loan is feasible. A logbook loan involves using a car as collateral. Whilst the rate of APR is comparable to that charged on Payday loans, consumers can borrow larger amounts because of the provision of collateral. Not keeping up with repayments will lead to the car being sold to clear the personal loan.

Avoid a High APR with a Secured Loan

Once a consumer has a bad credit rating, an unsecured personal loan is an expensive business. However, it is possible for home owners to get a secured personal loan to borrow a larger sum of money at a lower APR. The main negative is that, should the borrower default on a loan agreement, house repossession is the likely outcome.

Consumers with a bad credit rating have a number of alternatives to personal loans from high street banks. However, the rate of APR is high. If short term money problems are an issue, utilise a credit card cash advance or personal overdraft. If deciding to take advantage of a Payday loan, logbook loan or pawnbroker loan, make sure this is paid back in-full as quickly as possible.

The copyright of the article Bad Credit Alternatives to a Personal Loan in Mortgages/Loans is owned by Asa Ghaffar. Permission to republish Bad Credit Alternatives to a Personal Loan in print or online must be granted by the author in writing.