Lending has come a long way. In times gone by, banks took hold of the largest share of the loan industry with more transparent terms and conditions than moneylenders, who were notorious for charging outrageous interest rates to extort money from needy people.
As time fleeted by, the industry evolved with people becoming aware of unethical practices pursued by traditional money lenders and intervening regulatory authorities to safeguard the interest of borrowers, and the lending practices became more transparent.
As a result, private lenders have given a new dimension to the loan industry. Borrowing from banks and traditional financial institutions has lost ground, and private lenders have eventually become quite popular with bad credit loans.
Private lenders do not strictly adhere to your credit score
Your credit score reflects your financial behaviour. The higher the score, the better it is. Three credit reference agencies – Experian, Equifax and TransUnion – are responsible for having a record of your previous payments.
When you submit a loan application, your lender will approach one of these bureaus to access your credit report to check if you made any defaults in the past. Based on the record of your payments, defaults and missed payments, your credit file will display a credit score, an important factor while making a lending decision, calculated by these agencies based on their parameters.
Your credit score plays a paramount role in deciding your affordability. Banks strictly adhere to it while making a decision, but private lenders follow a different method to decide your affordability.
They will certainly look at your credit report, but they do not decide on the basis of the score calculated by credit bureaus. They have their own criteria to gauge your repaying capacity.
Missed payments and defaults can call your creditworthiness into question, but it is also important to check how old they are. Lenders firmly believe that no one can be perfect and stable when it comes to finances throughout their lifetime, no matter how organised they are.
A lot of unexpected factors like unemployment and medical expenses can ruin your budget, and you may end up falling behind in payments. If that scenario is not temporary, they will not consider you a borrower with high default risk.
However, you will still end up with slightly higher interest rates.
Direct lenders also give a chance to borrowers with very poor credit
Banks are strict about their lending principles. They will not sign off on a loan if you have a very poor credit history. However, private lenders are a bit liberal with their lending practices. You will likely get the nod even if you have a poor credit score.
You fall within the very poor credit score range only when you make permanent defaults, or you have declared insolvency, or a CCJ has been issued against you. Even though you have settled it, it will show up on your credit report for up to six years.
There is a possibility that you will get approval from direct lenders despite a settled CCJ. It is worth noting that very bad credit loans from direct lenders in the UK can be quite expensive.
The older the CCJ, the better the interest rates will be.
Private lenders give instant approval on bad credit loans
Instant approval is the prime reason why people prefer direct lenders to banks. Traditional lending was not so convenient. After putting in the application, you had to wait for a couple of days to hear from them.
When you come across an emergency, you often tend to get money this instant. You cannot wait long to get money to fund your unforeseen expenses. Considering this fact, private lenders decided to make the processing system as fast as possible.
They use modern technology. Pre-manual checks are done using the AI-integrated system. Lenders do not need to get involved in it. Once AI approves the application, lenders manually check your credit score and income statement to see if you can afford to pay back the debt.
With AI-integrated technology, the burden on lenders has been reduced to the greatest degree, leading to quick decision-making. You can get money transferred on the same day in your bank account.
If you borrow a large sum of money like a business loan, car loan or any other kind of secured loan, the processing speed is faster than that of banks or traditional lenders.
The approval rate is very high with private lenders
The approval rate of bad credit loans is very high if you take them out from a direct lender. Traditional lenders will straightaway turn you down when your credit score is not good at all, but private lenders are known for approving your application despite your bad credit rating.
The best thing about these loans is that the approval rate is up to 98%. These loans are advertised as loans with 100% acceptance. However, it is important to note that no lender can provide a guarantee.
For instance, a lender will also examine your repaying capacity after you put in the loan application. You get approval only if they are sure that your budget has wiggle room to make an additional payment every month apart from your monthly expenses.
If your creditworthiness is in question, they may refuse you. Under no circumstances can the approval rate be 100%. However, direct lenders still have a higher approval rate than banks or traditional lenders.
Bad credit loans come with personalised deals
One of the best advantages of borrowing money from a private lender is that they come with personalised deals. You will get a repayment plan based on your financial condition. Some lenders may offer you a couple of options so you can choose the one that you are comfortable with. However, you will have to stick to that repayment plan after choosing it.
Direct lenders can also revise your repayment plan if your financial situation has changed and you struggle to keep up with payments. Direct lenders are more flexible and practical than traditional mainstream lenders.
The takeaway
When it comes to bad credit loans, direct lenders will be the best bet. They are likely to approve your application despite a bad credit rating. The processing speed is faster. Further, they are flexible with their repayment plans.
Not only will you get a personalized deal, but you will also get it revised when you struggle with payments. In fact, they also give a chance to borrowers with very poor credit ratings.
PERSONAL LOANS WITH BAD CREDIT 