Do you know in 2020 alone, around 9.43 million people took out loans in the UK? Taking loans has always been a valuable tool for many people in the UK to manage finances. Because these loans help people to bear the unexpected expenses that come along the way, these expenses might also include consolidating debts, fulfilling home improvement expenses, and even financing big purchases like a car or home.
But do you know not everyone gets equal loans in traditional ways? People with less-than-perfect or poor credit history face difficulties in securing a loan in the UK. To save people from these difficulties, financial institutions have started to offer loans for bad credit.
People usually get scared by the name and the myths surrounding it, but in reality, it is created to help borrowers with lower credit scores. According to a survey, 19.8% of people have a poor credit score, depriving them of the loaning facility.
What makes people run away from this type of credit loan? The myths and misconceptions are the major reasons why people avoid such loans and live each day in misery.
Let us clear the air and spill the truth bombs so that you or others around you can know how poor credit loans can facilitate you.
Myth #1: Only For People With Extremely Bad Credit
This misconception is very common among the people of the UK that bad credit loans are only for people with the worst credit history. It is like stereotyping people who take this loan with a label of “poor credit history.”
However, reality and our research say a totally different story. TotalMoney, a UK based credit app surveyed a fragment of population and their research suggests that a good portion of people, nearly 20 million adults (one third), are struggling to secure loans from major lenders of the region.
This shows that there other reasons why people are having difficulty in securing a loan, like rising inflation, stagnant wages, and increasing interest rates, and not just less credit scores.
Although credit history is quite important, obtaining a loan does not necessarily depend on it. It is just that they don’t come in the “prime category” of borrowers.
Breaking this myth, such loans come in handy for borrowers who don’t fall in this prime category. This includes people with:
A fair credit score – These might have missed a payment or two in history, but they always pay their debts to rebuild their credit score. This type of loan helps such individuals by giving them a chance to show their sense of responsibility.
A good credit score but on the look for better rates – this might sound insane to you, but people with a good credit score might choose a poor credit loan if they are looking for a better interest rate. This is usually for a smaller loan amount because traditional lenders offer high rates for small amounts. This loan option helps them secure a more favorable deal.
Myth #2 – Exorbitant Interest Rates and Fees
People are usually scared of the skyrocketing interest rates and hidden fees that are expected to come with basic credit loans. There is no doubt about it, as the interest rates of bad credit loans are higher than normal loans, but only for people with a good credit score. They won’t always come after you.
For example, a lender who offers loans for bad credit faces a higher risk when dealing with borrowers with a less established credit history. So they add higher interest rates so that if by any chance the borrower fails to pay back they can cover the loss with the high interest rates.
This way they won’t hunt you down like predators and the loss is covered with the interest. This is set by the Financial Conduct Authority (FCA) in the UK.
At the same time, there is also one way to get a reasonable interstate rate even with this loan option. You can take quotes from different loan providers and see who is offering the interest rate of your choice.
There are legitimate credit lenders out there who charge standard fees, so there is no point in the misconception related to high fees. They will document every charge that will be included in the fees.
Myth #3 – Predatory Nature and Should Be Avoided at All Costs
Well, this myth or misconception is always associated with loans, but let us tell you that predatory nature applies to illegitimate lenders and not to legitimate sources. You can’t generalize bad credit loans from a legitimate provider based on what you have heard from people.
Illegitimate lenders always seek chances to exploit the vulnerabilities of borrowers already in miserable situations and act like predators when it comes to taking back loan installments. That’s why, to avoid this myth, always opt for legitimate providers and do your due diligence because money and the UK are two bad things when not done right.
You can spot the predatory lender by seeing if they are using deceptive tactics to trap you in their cycle of debts. However, legitimate lenders will always keep things crystal clear with financial assistance and an explanation of the terms and conditions involved in the loan contract.
You can check if the lender is authorized by FCA or not and if they are keeping things transparent with you or not. The best way to stay safe is to compare their loan conditions, including interest rates, fees, repayment schedules, and any potential penalties for transparency.
Myth #4 – No Alternatives to Loans For Bad Credit
When people are engulfed with the tension of poor credit scores, they forget to think straight and consider every misconception as truth rather than crosschecking it. There is always a plan B for a problem, and you just have to find it. Going for this kind of loan is not the only solution for borrowers with less than perfect credit history. There is more than one alternative to it.
For example, such borrowers can start building their credit history with time. You can even take the option of debt consolidation. Usually, what happens when you have multiple debts is that you are unable to manage them all. So you lose track of them and miss the payments, so it is better to consolidate them into one for simplified repayments.
Besides negotiating with your creditors and taking government assistance programs can also be helpful. But remember not to shy away from it.
Final Thoughts
These are just a few myths that we have tried to debunk and there are many more that we think you can debunk yourself by talking to a professional about it. These myths are stopping you from leading a financially stress-free life so why keep hanging on it?
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