People with bad credit history are likely to find it difficult to get a loan from a high street lender. Thankfully, Loan options are not limited to high street lenders.

If you’ve experienced credit problems such as defaults, Mortgage arrears or other credit problems, you should consider bad credit loans; these are loans tailored to people with poor credit and are subsequently less stringent on requirements.

Loan Options

1. Secured loans A secured loan is a loan for which you have to offer some form of collateral. In the UK, collateral is usually your home, although in smaller loans it can be a car or other assets that you own.

If you’re a homeowner, a secured loan is the best option simply because it would attract a lower interest rate; your home (collateral) provides security to the lender therefore lowering the risk despite having a bad credit rating.

2. Unsecured loans Also referred to as personal loans, these are loans that are given without any collateral; the lender has to trust you as they risk loosing out should you default on the loan. The lender uses your credit rating to evaluate the risk of you not being able to pay back the loan, a poor credit rating would make you a risk, coupled with a lack of collateral, most lenders would view it as a high risk loan. Those lenders that are willing to offer such loans, charge very high interest to compensate the risk.

Other disadvantages of unsecured loans for people with bad credit include: & 61607; The amount you can borrow is relatively lower than on secured loans. & 61607; Although the loan is unsecured, your assets are not completely safe, if you fail to pay back the loan, there’s a risk that collectors may repossess them. & 61607; The repayment term would likely be shorter.

Alternatives to unsecured loans Credit cards If you’re unable to get a personal loan because of poor credit, you should consider credit cards for people with bad credit; these also have a high interest rate but you’d only pay interest on the amount you owe. Credit cards are also flexible; you can payback what you owe sooner whereas loans normally have a fixed term, you can also re-use money you paid back on the credit card whereas loans do not allow you to do this.

Secured loans Even if you’re not a homeowner, there are other types of assets that a lender may accept as collateral; e.g. some lenders would accept cars as collateral for small loans. What you can do to improve your situation One of the factors used to determine your credit rating is your credit history; a credit history is a record of financial dealings in your past, missed payments, defaults or similar bad dealings equate to blemishes.

Over time, you can make your credit rating more positive by exercising good borrowing e.g. if you have a credit card, mortgage or car loan, make sure you make your payments in time, do not go over the authorised limit.

Another factor in determining your credit rating is the amount of debt you currently have; too much debt increases the risk of you failing to keep up the payments. The more you pay down your debts, the less of an effect this has on your credit rating.