How do bad credit loans work?
Bad credit loans can be a way to access credit even with a poor credit score. They’re sometimes the last resort as the interest rates are far higher, but in case of an emergency, they give those with poor credit history an option.
If you're considering a bad credit loan, read on for all of the Money Guru's wisdom on how these loans work.
What is a bad credit loan?
Bad credit loans are simply a type of loan offered to those with poor or little to no credit history. These loans usually have a high interest rate, as the lender may see those with bad credit as a high-risk customer.
Bad credit loans are usually offered by companies specialising in personal, secured and unsecured loans, long and short-term loans or emergency loans and not traditional high street banks or lenders.
If you are claiming benefits, there is a government-funded alternative, a budgeting loan. This is only available to a small group of people and for very specific reasons.
Can I repay a bad credit loan early?
Whether you can pay back a bad credit loan early depends on the lender. It's really important to read the terms and conditions fully.
Some loan companies will allow you to pay back early if you can afford to. This will avoid some of the interest which may be accumulated daily, weekly or monthly. However, this could incur additional charges, such as an early payback fee, commonly referred to as an early redemption charge or early settlement fee. This is usually a few months interest but varies from company to company.
How quickly will a bad credit loan go through?
As these loans are sometimes used in an emergency, it can often be important that the borrower has access to the money quickly. Of course, just how quickly you get the money will depend on a number of factors.
One way you can speed up the process is to make sure you fit any essential criteria before applying. You can find out more in our guide on how to apply for a loan with bad credit.
To compare loans that match your financial and personal circumstances, try our moneymatcher. At a glance, you’ll be able to see the products that best fit your needs.