Private Loans with Bad Credit

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Representative 277.5% APR Representative Example: Borrow £700 and pay £111.27 per month for 12 months at an interest rate of 140% per annum (fixed). The total charge for credit is £635.24 The total amount repayable is £1335.24. Representative 277.5% APR (variable). Your APR rate will be based on your circumstances.

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Do you have a bad credit history? Alternative options to traditional bank loans may be available to you.

Most individuals know that it can be extremely difficult to obtain any form of loan if they have a bad or non-existent credit history. Not only is it more difficult to be approved for any loans in situations like these; you will also be charged higher than average interest rates in the event of being able to secure any form of loan because of this.

When it’s not possible to obtain loans from traditional banks, an alternative option is to apply for private loans. These can often be easier and quicker to obtain, but not everyone is aware of how they work.

When the term ‘private loans’ is used, it normally refers to the following two options:

  • Loans obtained from sources other than normal banks or credit unions
  • Student loans that aren’t being provided by the government or education department

Both of these options will be discussed below, enabling you to make the right choice the next time you need to borrow money.

applying for a private loan online with a smartphone

Will you Qualify for a Private or Payday Loan?

Private and/or payday loans may also have some form of criteria regarding credit history that will need to be met before an individual can qualify for them. However, there are a number of private loan providers that have fewer criteria to meet than those required by banks and other formal lending institutions. As such, you probably stand a higher chance of qualifying for a private loan if your have a bad credit history.

Searching for Lenders

Thanks to modern technology and the internet, there are now several different options available for anyone who needs to borrow money. However, traditional banks will normally be quite hesitant to accommodate borrowers if they have a bad credit history. As such, the market for private loans has grown exponentially over the past few years.

It can be quite risky to search for lenders if you have a bad credit history, especially if you need to resort to using payday or direct lenders. While it will most likely be necessary for you to resort to working with direct lenders, you will need to exercise caution.

When searching online for alternative lenders, there’s always the possibility of having your identity stolen. In addition, lenders who deal with borrowers that have a bad credit history can be quite costly in terms of interest rates and repayment terms. Over time, this could make your existing financial situation worse than it was before.

Before signing agreements, completing any paperwork or accepting funds, it’s crucial to ensure that the lender you’re working with is reputable and accredited.

Working with Online Lenders

With peer-to-peer lending becoming quite popular over the past few years, this has made it a lot easier for individuals with poor credit histories to borrow money. In many cases, individual lenders will not be as strict with their criteria as traditional banks – and it’s also quite easy to find them these days.

Recently, various other online lenders have made their services available, making it easier than ever for anyone who has bad credit to borrow extra money in case of emergency. Investors that have additional funds available are known for providing direct loans at relatively competitive interest rates.

Approaching Small, Local Lending Institutions

If you have a less than acceptable credit history, you’ll most likely be searching for anywhere to borrow funds – other than a regular bank. However, there may be cases where a local credit union or even smaller community bank will be willing to assist individuals who don’t have good credit histories.

When working with a smaller, local lender, you will be able to enjoy personalised service and possibly even a solution that has been tailor made to suit your current financial situation. In most cases, it will be better to obtain loans from a local bank or credit union instead of working with direct or payday lenders.

Borrowing from someone you know

Sometimes, family members or friends who have access to surplus funds may be willing to provide you with a loan. However, it’s highly recommended that this only be done if a formal loan agreement is drawn up between all parties concerned.

Information in the agreement should include terms about how repayment will work, how much each instalment will be and whether payments will be reported to credit bureaus or not (tip – if they are, it can go a long way in helping to rebuild your credit history if all repayments are made on schedule). It’s important to ensure that all parties involved in this process know what their responsibilities are going to be.

Real Estate Loans

Individuals who regularly invest in real estate will normally require large loans on a consistent basis, and it can be tedious to keep applying for them. However, private individuals and other entities have started specialising in providing repeat loans to these investors. This means that it can be worth getting to know investors such as these if you intend dealing with real estate over the long term.

Loans involving real estate are sometimes referred to as hard money loans and advantages of them include that they can be made available quickly and many lenders won’t require any form of collateral or proof of income when processing them.

Interest Rates for Private Loans

In cases where you qualify for a private loan, you’ll need to be prepared to pay a higher interest rate that that which is offered by a traditional bank. Some direct or private lenders are known to charge interest rates of as much as 500%, meaning that it can take a long time to repay them in full.

While interest rates may be quite high on private loans, this may be your only solution to obtain additional cash in an emergency if your credit history is bad. Keep in mind that some lenders may charge an application fee for their services where private loans are concerned. However, you can shop around between lenders because not all of them will charge additionally for providing this service.

Taking a Look at Private Personal Loans

If you need to borrow funds, but don’t have any collateral to provide, your best option can often be an unsecured private loan. These loans will not normally require you to provide collateral or anyone to co-sign the agreement with you.

Some private loan providers may perform a credit check before approving your application, but in most instances, this won’t prevent them from doing business with you. As a borrower, you’ll need to remember that, while it may be easier to qualify for private personal loans, they can prove to be more difficult and expensive to repay than bank loans. Examples of these can include payday and cash advance loans.

Available Types of Student Loans

If you’ve been considering borrowing money to further your education, the two most well known types of student loans are available, namely federal and private loans.

Government Loans

These are loans that are provided by the department of Education, meaning that they will normally be your best option when the time comes to further your studies – especially when compared to private loans. Loans provided by the government tend to be more forgiving with regards to repayment, which can be convenient if you encounter financial difficulties at any time.

Private Student Loans

Many individuals aren’t able to borrow as much as they need for their studies by means of government loans, meaning that they may also need to obtain private loans.

While private loans may be quite easy to obtain if you have good credit, you must keep in mind that more interest will usually be charged on them. Several students have little to no steady income, which makes it difficult to prove that they will be able to repay any type of loan. As such, a guarantor or co-signer may sometimes be requested when applying.

When obtaining student loans, it’s strongly recommended that you borrow only as much as you genuinely need, as they can be quite difficult to repay in full.

Key points

  • A private lender is typically a lender other than a bank or credit union.
  • A private student loan isn't sourced via the DoE (Department of Education).
  • If you've been refused a loan by a mainstream lender then they can be a convenient way to lend even with bad credit.