If your credit rating isn’t considered to be up to scratch, major lenders may refuse your loan application based on your bad credit score, the process of which could further damage your credit rating.
If you’re held back by a poor credit score rating and you are not currently bankrupt, guarantor loans for bad credit can be a great option. They could allow you to borrow the money you need while giving you the opportunity to improve your credit rating at the same time, if you make the repayments on time each month and keep up with all your other bills.
What is a bad credit loan?
The principle behind bad credit loans is simple: they are loans for people with bad credit scores, who might not be able to borrow money by other means.
In cases of bad credit, a guarantor loan for bad credit could help you to finance the car you need for your commute, to get your new business off the ground, cover some of the costs of a wedding or even cover an unexpected cost such as a car repair or home improvement.
There are a number of reasons why a person may have a poor credit rating, some of which include:
- Late or missing repayments for other loans or agreements
- Entering into an Individual Voluntary Arrangement (IVA)
- Having a County Court Judgement (CCJ) made against you
- Never having had a credit card or other form of credit, which means you haven’t built a credit profile that the lenders can check
If you have a poor credit score or don’t have a credit profile at all, many lenders will identify you as a risk because they don’t have any evidence to support you being a trust-worthy borrower.
With a poor credit loan in the form of a guarantor loan, you can simply ask for someone such as family or a friend who trusts you to guarantee it, allowing you to repair your credit score responsibly.
What is a bad credit score?
A credit score is a number which represents your reputation as a borrower. Each credit reference agency uses various different sources and criteria to determine your credit score, hence why different agencies can often score you differently and also why you can be refused by one credit provider for having a poor credit score and not another.
The data used to inform your credit score ranges from bank account information, to address history and court records. A bad credit score basically means that, based on the data collected by a particular credit reference agency, you have an element of risk against you that a lender considers when determining whether to provide you with credit or not. In most instances of bad credit scores, it’s unlikely that mainstream finance providers will accept your application for finance.
Each credit reference agency user their own scale to determine whether your credit rating is good or bad. The table below shows how the 3 main credit reference agencies credit scores compare.
Checking your credit score is easy, and can even be done free of charge by using Call Credit’s Noddle service. Other free services of note are Clearscore, who use Equifax, and Experian’s CreditMatcher. Using these services can help you have a better understanding of why your credit score is bad, and increase your chances of getting a guarantor loan for bad credit.
Can I get a loan with bad credit?
You’re not judged on your credit score with Amigo. We’re a trust-based guarantor lender, specialising in guarantor loans for bad credit in the UK. As long as you have a guarantor who knows and trusts you, we can trust you too. Your guarantor must be able to afford the loan payments if you don’t make them.
Having a bad credit score can often make getting a loan difficult. That’s why Amigo was created, to provide bad credit loans for those who can’t borrow money from traditional lenders.
How can a guarantor loan for bad credit improve my credit score?
Being rejected for a loan can be frustrating, especially when you have an unexpected cost to cover. A guarantor loan for bad credit not only provides a finance option when you're unable to borrow from elsewhere, but it can also help you to rebuild your credit score.
If you manage your guarantor loan for bad credit responsibly by making your repayments on time and keep on top of all your other bills, then you could find that your financial trustworthiness rating begins to rise.
What are the best loans for bad credit?
There are various different loan options available for those with bad credit, depending on your requirements and circumstances, but one of the best options in terms of interest rates and repayment options can be a guarantor loan for bad credit.
Guarantor loans for bad credit work by having someone who trusts you to guarantee to make your repayments for you, should you find yourself unable to meet repayments. The reason that bad credit guarantor loans are good in cases of bad credit is because they’re based upon relationships and trust, rather than a credit score.
This trust gives the lender a guarantee that the loan will still be repaid should the borrower fail to make a payment. This reduces the risk, meaning that interest rates on guarantor loans for bad credit are usually lower than with the likes of other bad credit loan options, such as payday loans.
The person acting as your guarantor will need to be someone close to you (such as a friend or family member), who is aged 18-75, hasn’t previously had issues paying bills and can afford to make the repayments on the loan if you do not.
Guarantor Loans for Bad Credit Vs Payday Loans
Many people have never heard of a guarantor loan as a bad credit loan option and often wrongly associate this type of loan with bad credit payday loans – but these two options couldn’t be further apart.
Payday loans for bad credit are largely marketed as a quick and easy way to borrow money between wages, to tide people over until payday. This is a very short-term option for borrowing money and usually requires you to fully repay the loan within a week or two at a very high rate of interest, whereas a guarantor loan for bad credit is spread over a number of years at a much lower interest rate. Despite now being capped, the high interest rates associated with payday loans mean they can be difficult to pay off, which could have a negative impact on your credit profile.
How Lindsay Whitehouse set up a business using a guarantor loan for bad credit
Guarantor loans for bad credit are suitable for a range of circumstances, but they’re especially useful when small to medium sized investments are required and you need the flexibility to pay them off over an extended period of time.
Lindsay Whitehouse, an Amigo Loans customer, chose to obtain a guarantor loan when she discovered that she was unable to lend the money by other means due to her bad credit rating. Craving the challenge of entrepreneurship by setting up her own business, but being refused by high street lenders, Lindsay took an alternative route and applied for a guarantor loan for bad credit, with her mother as guarantor. With her £1,000, she was able to not only purchase supplies, but rent a space in a salon.
"Mum trusts me," Lindsay said. "The interest is a little more than a normal loan but it’s not extortionate. I’m building up my client base before opening my own shop, and I would use Amigo when I need money to open up a salon."