Since the credit crisis a few years ago, it is far harder to get approval for an unsecured loan. Lenders are now reluctant to lend money due to high unemployment which has led to a series of interest rate rises, despite falling central bank rates. If you have a bad credit history, you may find that a secured loan is the only option. Lenders are unlikely to agree unless their loan is supported by collateral.
Research by uSwitch.com revealed taking out best buy unsecured personal loan yielded £1.2 billion more interest than would have been the case last year. Over the past 13 months, the average personal loan rate has risen from 6.1% to 7.4% for good credit history customers.
Are Bad Credit Unsecured Loans Available?
A poor credit history makes it almost impossible for a borrower to get a loan that is unsecured. The poor economy, combined with an adverse or bad credit history, normally renders the borrower too high a risk for most lenders. Minor adverse credit might not be an issue in certain circumstances.
The only unsecured cash loans available for people with bad credit are at a higher rate of interest from a reduced range of specialist adverse credit lenders. Others find that their poor credit history only permits them to borrow money from a loan shark, pawn shop or payday cash advance lender.
Bad credit loans typically accrue 50% to 60% interest per annum. Although monthly payments start out as affordable, much can change over the course of 5 years. The higher rates mean that a borrower is paying mostly interest and not clearing the principal.
Secured Loan vs Unsecured Personal Loan
Provided that you have sufficient equity, it may be possible to take out a secured homeowner loan on your property. This permits you to borrow a larger sum of money at an enhanced rate of APR because the bank loan is supported by collateral.
The major problem with a loan secured on your home is that failure to keep-up with the repayment schedule could lead to repossession. Many lenders only allow you to fall up to 3 months behind with your repayments before commencing repossession proceedings.
Unlike with unsecured personal loans, it isn't possible to utilise a debt free solution when you encounter financial difficulties. If struggling to keep-up with the repayments on an unsecured loan, you can utilise a debt free plan, such as a debt management plan or Individual Voluntary Arrangement (IVA).
Unsecured Cash Loan and Secured Homeowner Loan Considerations
Before you take out a bad credit personal loan, consider whether your purchase is really necessary. Many unsecured loans won't be feasible meaning that the rate of APR will be high. Secured loans are available if you have sufficient equity, but they are risky.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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