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Getting Private Loans with a Bad Credit History

Key points

  • If a loan doesn’t come from a Credit Union or Banking institute it is likely considered a Private Loan.
  • They are popular with those that have been refused a bank loan before due to bad credit.
  • It is even possible to get a private student loan that isn’t issued from the Department of Education.

If you have a bad credit history, it can be extremely difficult to obtain any type of loan. In situations where you’re fortunate enough to qualify for a loan with bad credit, you will usually also be penalised in the form of higher interest rates and/or administrative fees.

Over the past few years, private loans have become a viable alternative for individuals with bad credit histories. However, not everyone is aware of what these are, how they work or where to go about applying for them.

When the term “private loans” is used, it normally refers to one of these two options:

  1. Loans that have been provided by someone other than a normal bank or lending institution
  2. Student loans that have been provided by any institution other than the Department of Education

Below is a basic breakdown regarding how to go about obtaining the extra funds you need from the most appropriate source.

Qualifying for a Payday or Private Loan

If you want to obtain a payday or private loan, you may be required to have some form of credit history, Your existing credit rating could determine whether you will qualify or not. However, there are a number of private loan providers such as Creditum that may have fewer restrictions that will have to be met in order to obtain a loan than traditional banks. This means that you stand a far higher chance of qualifying for a private loan in most cases.

Working with the Right Lender

These days, there are several options available for individuals who need to borrow additional money for any reason. While the vast majority of traditional banks will not normally assist anyone with a poor credit history, several private lenders will be willing to step in and help.

It can be quite risky to find a reputable lender if you have a bad credit history, so it’s essential to exercise a reasonable amount of caution while searching. Not only is there the possibility of having your identity stolen online; several direct lenders who offer loans to individuals with bad credit histories are known for charging illegally high interest rates – which will worsen your financial situation even further.

Before completing any application form, signing an agreement or accepting funds, you must ensure that the lender you’re working with is reputable and industry-accredited.

Online Lenders

Peer-to-peer lending has become quite popular over the past few years, meaning that it’s now easier than ever to obtain a loan if your credit report is less than exemplary. In many cases, individuals tend to be a lot more flexible than a traditional banking institution and this has made it possible for individuals to obtain loans from sources other than banks.

Peer-to-peer loans are that that are provided by private investors, and they tend to offer fairly competitive interest rates on their funds.

Smaller Lenders who are Locally Situated

Although you may want to borrow extra funds from any institution except a bank, you shouldn’t rule out the possibility of working with a community bank or even your local credit union. A number of these institutions will be willing to assist you if your credit history is not sufficient to make use of a traditional bank.

When working with a local lender, you’ll be able to meet face to face with a representative to discuss your requirements and the options they have on offer. Obtaining a loan from this source is usually far better than resorting to a payday or cash advance loan.

Real Estate Loans

Most people who invest in properties will require large loans fairly often, but it’s normally a long and detailed process to apply for them. However, there are private individuals and some other entities that specialise in providing repeated loans to property investors.

As such, it can be worthwhile to get to know lenders like these. These are sometimes also called hard money loans and they are often processed quickly because proof of assets and income normally isn’t required when applying.

Borrowing from someone you know

In cases where family or friends have access to additional cash, you may sometimes be able to borrow the funds you need from them. However, it’s strongly recommended that a formal agreement is drawn up that clearly stipulates repayment terms so that there are no negative effects on your relationship with them afterwards.

This type of loan can also be a big help if the agreement involves reporting your repayment status to credit bureaus, as it can help rebuild a poor credit history over time.

This process can be started by sitting down and engaging in honest discussion about what the needs and expectations will be, and whether this will be a suitable solution for everyone concerned or not.

Student Loans

If you require funds to further your education, various types of student loan are often available.

Federal or Government-assisted Loans

These types of loans are normally among the best options available, meaning that you should do everything possible to obtain them before searching for private student loan options. In many cases, these loans can be a lot more forgiving if you happen to fall on difficult times financially. Credit history is normally also not as crucial as it would be when applying for private student loans.

Private Student Loans

Many students find that they aren’t always able to borrow as much as they need for their studies with government-assisted loans. In cases like these, it’s sometimes possible to obtain further assistance by means of private student loans.

Students usually have very little to no income, making it difficult to prove that the loan will be repaid. As such, a co-signer may sometimes be required when applying for private student loans. A co-signer will need to be willing to assume the same amount of risk as the applicant with regards to repayment.

It’s important to remember that while many student loans can be obtained quite easily, they can be quite difficult to repay in full. As such, it’s recommended that you only borrow as much as is genuinely needed to cover the cost of your studies.

Interest Rates for Private Loans

If you obtain a private loan, keep in mind that you’ll pay much higher interest rates on it than on loans obtained from banks – in some cases, interest rates can be as high as 500% on them. However, these loans can be handy in cases where an applicant has a poor credit history or need to obtain funds in a hurry.

While some lenders may charge application fees, many of them don’t anymore. This means that you can shop around between lenders to find one that is the most affordable for you. The application process is also completed online these days, making it easier than ever to obtain the funds you need.

What is a Private Personal Loan?

In situations where a borrower doesn’t have any assets that can be used as collateral, unsecured private loans will normally be the best option because no guarantor or collateral is needed.

Some lenders may perform a credit check to obtain information about your credit history, but in most cases, this won’t prevent you from being able to obtain a private loan. It’s important to keep in mind though, that any form of unsecured loan will carry a higher than average rate of interest – which can make them difficult to repay in full. Examples of these can include cash advance, payday and student loans, along with credit cards.

Representative Example

Representative example of the total cost of the loan, including all applicable fees – Typical loan size of £25,000 over 120 months = £275.82 pm, 4.35% Variable APR – 6% (including £1800 in interest) total repayable £33,098Maximum Annual Percentage Rate (APR) – approx. 24% (lender starting rate 18%) – Typical Apr will be around 8%

*We are not a lender, we provide a free credit brokering service. We will never charge you a fee for using our application.
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Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk