Bad credit loans are small personal loans aimed at funding unforeseen expenses like medical bills, car repairs and so forth. Banks do not administer these loans as they think they are taking on risk by lending money to someone who has already shown the signs of a poor credit score, and having a blemished credit report means facing higher interest rates. Thankfully some private lenders do not mind accepting applications from poor credit borrowers.
Despite a less-than-perfect credit score, the approval does not mean that your credit report will not be peered at. A lender cannot get to know about your score unless they run a hard credit check. Multiple factors are taken under advisement to decide if you can afford to pay back the debt on time, like how worse your credit score is, how old the inquiries are, when was the last time you borrowed money and your income level.
Bad credit loans are expensive even though you get a lender who claims to be offering them at lower interest rates than others. Unfortunately, some scammers pretend they are legitimate lenders and make a lot of profits by charging notoriously high-interest rates. Here are the scams that you must watch out for at the time of taking out a bad credit loan:
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The lender shows overly willingness to lend you money
A lender is not obliged to loan you money without a credit check, even if a loan is sold with a promise of a soft credit check or no hard inquiries at all. If a lender does not care about your credit score at all, it is a red flag.
The application process takes a couple of hours to come to fruition, but a credit check is part of the application process. You should back out if you find that a lender is asking you for your Social Security Number, bank statement or other personal and financial details and not informing you that they will also check your credit file.
However, when the loan amount is between £100 and £500, lenders will not run a hard credit check, and therefore, such loans are not reported to credit reference agencies. The lending decision is made after running a soft credit check. In case of borrowing over £500, you should confirm with the lender if a hard credit check will be run. If not, you should immediately drop the idea of borrowing from the same lender.
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The lender’s name is quite similar to a reputed lending company
It is not uncommon in the lending industry to see some lenders pick very similar names to the names of other reputed direct lending companies. This kind of attempt is made to make people believe that they are the sister company so as to direct the traffic of the other’s lending company.
It may be hard to know if it is a true lender, so the best way to find it is that try to enter the name in the search bar and see if any other company shows up in the results that has a similar name. Another way to find out the legality of this company is to find out the physical address. It is not a surprising thing to have a fake address on the website.
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A lender provides a no-credit-check loan
Some lenders attract credulous borrowers to make extortionate profits by lending money without a credit check at all. Bad credit borrowers are often in search of lenders that let them borrow money without credit inquiries. They do so as this prevents their credit score from going down. Unfortunately, this comes with a huge interest rate.
As a lender does not know your credit score, you will be perceived as having a high default, which gives lenders a chance to charge very high-interest rates. Under no circumstances can a lender lend you money without running a credit check. If you see a lender offering bad credit loans with no credit check at all, you should not trust them.
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A lender asks you to pay some money upfront
Since bad credit loans offer a small sum, they are not subject to collateral or an upfront fee. A legitimate lender does not charge any upfront fees. However, they can charge loan origination fees, but that is part of an APR. You are not supposed to pay anything when you apply for a loan with bad credit.
Make sure you inquire about it before you officially put in the loan application because, despite backing out, you will have already hurt your credit score. It is always suggested that you do proper research to pick the best lender. Contact them to get to know about interest rates, APRs, and repayment terms. Get a pre-approval letter to get an idea of how much it will cost.
Focus on improving your credit score
Although bad credit loans are convenient, you should try to do up your credit rating. Having an excellent credit report will help you get money at a lower interest rate. Here are the tips to follow to strengthen your credit score:
- Avoid late payments. In addition to debt, you should also pay off dues on time, like rent, utility bills and the like.
- Do not consume the entire credit limit. Pay off the balance before your lender reports to credit reference agencies.
- Do not make the mistake of closing all open accounts, as this will drop your credit score.
To wrap up
A lot of lenders are out there offering loans with bad credit. When you type “I need cash today fast”, you will find several lenders in search results. But you will have to pick a legitimate lender and follow ethical lending practices. Bear in mind the trick, as mentioned earlier, to filter out bad credit loan scammers.
Caleb works as a senior content writer at Financealoan for the past 3 years. He is a writing enthusiast and invests a good time in exploring and writing about financial trends. His keenness in exploring a topic to create a research-based piece is simply unmatched. He believes in including a texture of authenticity with real-time examples and facts.
Caleb’s blogs and articles reveal deep-seated knowledge and expertise. His educational qualification forms the base of his excellent command over the industry and Jargon. He is a postgraduate in Finance and is currently involved in exploring the world of the stock market.
