Firstly, what not to do; and that is panic. Many people are turned down for loans these days as the fallout from the worldwide credit crunch hits high street banks and other financial institutions. However, there are a number of options open to you.
There are specialist loan companies who will offer unsecured loans for people with bad credit. Other lenders offer “payday loans” on a short term basis but these can be subject to extremely high interest charges.
A bank loan will usually be refused if the applicant has a bad credit record. This can be due to missed payments, high debts or County Court Judgements (CCJs). Whenever someone applies for a credit based product, for instance a loan, credit card, mobile phone contract or mortgage, the lender will look at the applicant’s credit score.
A credit score will be derived from the applicant’s previous financial history. There are two main credit scoring agencies in the UK: Experian and Equifax. Lenders will not give unsuccessful applicants a reason why they have failed to qualify for a loan. They will refer the applicant to the relevant credit agency. Anyone can request access to their credit report for a fee.
Should you be turned down for a financial product based on a poor credit score, you need to gain access to your credit report. There could be items on the report which have subsequently been settled. If this is the case, the relevant bank or financial institution should be contacted and requested to remove the expired debts.
Once you have cleared up your credit score to be a true reflection of your current status, you may wish to reapply for the loan. You need to be careful here though; subsequent rejections will have a negative effect on your credit score.
Should you be unlucky again in your application, you might consider looking into unsecured loans for people with bad credit. The APR will inevitably be higher than the mainstream banks, but depending on how important the loan is to your immediate financial situation, such a loan may be the solution.
Someone finding themselves in the position of seeking a loan, despite having a poor credit history, may well need some assistance in managing their finances. The unsecured loan may be a short term solution but unless you want to spend most of the rest of your life struggling with debt (and surely no one would wish that on themselves) some education in budgeting may be called for.
There are many online resources designed to help you get out of debt. Agencies such as Christians Against Poverty offer counselling services. It is important to seek advice before your debts spiral out of control.
There are some good common sense steps to take to begin the process of debt reduction:
• Look at reconciling your existing debts into one loan. The key thing here is to compare the APR of your existing debts to the loan you wish to take out.
• Contact your creditors to arrange payment plans. Credit card companies, for instance, may even be willing to lower the rate of interest they charge you, if you can guarantee regular agreed payments.
• Wherever possible, pay more than the minimum agreed amount. The more you pay, the sooner the debt will be cleared.
• Take the debt with the highest APR and make every effort to get that one paid off first.
• Although it is embarrassing, maybe even humiliating, see if a family member or close friend is willing to lend you money to pay off some of your debts.
• Avoid loan sharks, and any other arrangement that takes the APR into three or four figures.
So even though the high street and supermarket banks may be unwilling to help you, there are alternative solutions available. As we said at the start of this article, “Don’t panic!”