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What Is A Bad Credit Loan?

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Bad credit loans. What are they and do I need one?

If you’ve always paid your bills on time, and have never really gotten into any financial troubles, then you probably won’t need to worry about what a ‘bad credit loan’ is, or how to apply for one.

However, if you’re like many of us who have had a little hiccup with our finances in the past, even years ago, then you may need to get a handle on what ‘bad credit’ and ‘credit risk’ means and how to access funds even with a ‘bad credit’ tag attached to your credit file (a record of your financial history).

It’s really very simple. From the time you start applying for credit – for most people this is with their first credit card or personal loan – your risk of default is being assessed and monitored. This means that if you make repayments on time and build up a reputation for being a ‘low risk of default’ (meaning you have a low risk of finding yourself unable to pay the amount due on your credit card or other loan) then the bank / financial institution may even allow you to increase your credit limit (borrow larger amounts of money) and have access to further loans (e.g. a home loan to purchase a house).

If however, you struggle with your first credit card, and find yourself slipping behind in repayments, the bank may choose to officially list you as a ‘bad credit risk’ (meaning you have a high risk of finding yourself unable to pay the amount due). As a result, you may find that banks and other financial institutions don’t want to offer you credit or as much credit in the future. Or they may only offer you credit if you have somebody to personally guarantee that you will make your repayments on time (a guarantor). The guarantor may then be liable to pay back the loan if you’re unable to do so.

A bad credit loan is the kind of loan you may need if you require credit and your credit history is less than perfect. But it’s nothing to be embarrassed about. Lenders deal every day with people who have had hiccups in the past with their finances. That’s why specialist loans for this purpose have been created. It’s a way to access funds at the same time as proving to future lenders that you’re now able to manage your personal finances appropriately.