Banks are usually the first place we turn to when we need to borrow money, but they represent only one aspect of the lending profession and there are many other companies that provide services that the banks do not. Banks tend only to be interested in certain types of lending and they have set criteria for deciding who can borrow money from them. It is very rare for a bank to offer any kind of loan to someone with credit that is not great, so it is not surprising that many people are turned down by banks.
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If banks will not lend you money, it is probably safe to assume that you have some sort of problem with your credit score, so you need to look for companies that specialise in lending to people with poor credit. How much you need to borrow, and for how long, will dictate what kind of lender you need to approach. I will look at three different types of lending in the rest of this article.
One of the most common types of lending that does not depend on credit checks is what is known as payday lending. This type of loan is always for a relatively minor sum (usually up to about $1,500 or £800) and the term of the loan is likely to be for just a few weeks. They are designed to give you a cash advance to tide you over until your next pay day, and are just meant to help cover occasional unforeseen emergency expenses. They should definitely not be used to fill a gap between your income and expenditure or pay off previous payday loans.
While some payday lenders still carry out a credit check, there are plenty who do not, and online processes are now very streamlined so that the best lenders can have money transferred to your bank within an hour or so of you completing an online form. The reason they are not concerned about bad credit ratings is that the only things they need to be sure about are that you have a job that will pay you more than you are borrowing and that you have a bank account that your pay goes into which you can use to give them their money quickly. They will want details from you to ensure you meet these basic requirements, but a credit check will not really help them.
If you need to borrow more money than you can get with a payday loan, you will need a different type of bad credit loan. Lenders will always require some sort of assurance or guarantee that they will get their money back, so any type of loan that does not require a credit check will use another system to give the lender some assurance of being paid.
The remaining options for people with bad credit are home equity loans or guarantor loans. With a home equity loan, the borrowing is secured against your house, so the lender has the assurance of knowing that if the worst comes to the worst and you fail to pay back what you owe, they have the right to sell your house so they can get their money back. Needless to say, this kind of loan is only an option for people who own homes or who have a mortgage.
The final option is a guarantor loan, which is an arrangement where you find someone else with a good credit rating who is prepared to act as a guarantor for you. What this means is that they need to sign up as part of the loan agreement to confirm that if you default on the payments they will then become liable to pay the loan back.
If you are having problems with getting a loan and you think this is to do with your credit, it is worth checking your credit report just to make sure there are no errors on it. It is not unusual for reports to contain out of date or incorrect information, which can adversely affect your credit. You can check your credit report free of charge by signing up to a scheme with a credit agency, checking your report, then cancelling before you need to pay anything.
If you are considering a payday loan you should be careful about choosing a lender because it is an area of lending that is notorious for bad practice in terms of ridiculously high penalty charges and interest rates. You should follow recommendations to ensure you approach only reputable lenders.
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