Where to Get Low Credit Score Loans
Bad Credit Loan Lenders for All Personal Circumstances
Aug 23, 2009
Low credit score loans can seem evasive for those who urgently need to borrow money. Individuals who have missed or made late payments on any credit agreement within the last six years will have an adverse credit rating. The greater risk of default posed to lenders means that it becomes more difficult to get a loan. There are some lenders that specialise in lending money to those who have a financially checkered past, but they will charge a higher rate of APR and/or require the provision of collateral.
Where to Get a Low Credit Score Loan
Whilst bad credit loan lenders are unlikely to be high street financial institutions, it remains possible to get a low credit score loan. The global credit crisis has created a mini boom for the providers of adverse credit lending. The best sources of adverse credit loans include pawnbrokers, doorstep lenders, Credit Unions and loan sharks. Each lender offers a variety of services to the struggling borrower.
Doorstep Lenders
Up to 90% of the doorstep lending market is dominated by six leading players according to the Shadow Housing Minister, Grant Shapps. These lenders specialise in offering low credit score loans to borrowers who have an adverse credit rating due to missed or late payments. It is an any-purpose unsecured loan that is typically for between £100 and £500.
Whilst governed by the Consumer Credit ct 1974, doorstep loans have come under criticism for preying on the poor due to the high APR they charge customers. Although a typical 12 month loan results in a 254% APR, Provident Financial was recently criticised by The Guardian for charging up to 545%. Keep the term of the loan to an absolute minimum in order to avoid the accrual of interest.
Credit Union Loans
Individuals join a Credit Union based on a common interest, such as professional status or locality. Others are able to join based on being related to a member. Unlike doorstep lenders and loan sharks, they are non-profit organization who have the best interests of their members at heart.
They will help a borrower to decide whether it is sensible to take out a low credit score loan through a careful financial and budgetary assessment. This assistance often means that an adverse credit loan is not necessary areas where money can be saved have been identified.
Whilst most Credit Union loans are for just a few hundred pounds, the rate of interest is competitive. It is currently capped by law at 2% per month (the equivalent of an annual rate of 26.8% APR), it is often far lower in practice.
Loan Sharks
Bad credit loan lenders aren't always governed by the Consumer Credit Act 1974. This is never more true than with loan sharks who, according to Grant Shapp, are offering to lend money at a rate of up to 10,000 APR. No matter how desperate any financial problems are, avoid these loans at all costs. Personal debt will rise quickly and their collection methods are at best questionable.
Pawnbroker Loans
Pawnbrokers will offer low credit score loans to customers based upon the provision of collateral, such as gold, jewellery, collectables or electronic equipment. The rate of APR charged to customers is about 6% per month, although the rate will be lower for some of the larger loans. The annualised rate is typically 45-85% APR.
Whilst most consumers only choose to borrow a few hundred pounds to help them out of a tight spot, it is possible to borrow in excess of £10,000 with a pawnbroker loan. The duration of a lending agreement is typically 6 months, although this can normally be renewed at the end of the term.
Always seek to do business with a bad credit loan lender that is regulated by the Consumer Credit Act 1974. Failure to comply with the terms of the agreement (not redeeming the collateral) will lead to the item being sold to recover the amount that was lent.
An individual who requires a low credit score loan should consider a Credit Union the first port of call. These are non-profit organizations that work and operate purely for the interests of their members. Other bad credit loan lenders, such as pawnbrokers, may also be able to help at a reasonably affordable rate. Only borrow money when there is an urgent financial need (paying the rent or mortgage) and keep the borrowing term to an absolute minimum in order to avoid the accrual of further interest.
Sources
Jones, Rupert. 28 July, 2009. "Provident Financial enjoys profits boost but is attacked by Barnardos." The Guardian.
Shapps, Grant. "Pay day for loan sharks." Shadow Housing Minister.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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