Having impaired credit doesn’t mean that you can’t access borrowing as and when you need it. Lots of lenders understand that most people experience financial difficulty at some point in their lives, and usually recover from it with a bit of support. However, it does often mean that you may have to widen your net a little from the first port lenders you’d typically approach, like your bank, building society or usual credit provider. A quick online loans search will highlight that there’s a whole lending market dedicated to helping people with adverse credit find the funds they need to achieve their life goals. There are a number of options available to people with bad credit, including:
- Secured Loans
- Refinancing Loans
- Guarantor Loans
- Peer-to-peer Lending
- Bad Credit Loans
- A Credit Union loan
Secured Loan or Home Refinancing
There are lots of different reasons why homeowners may be considering a home refinancing loan. With an impaired credit rating, many mainstream lending options like personal loans or credit cards may be off the table for you. Yet the fact is, being able to borrow for larger purchases like home improvements, to fund essential home maintenance or to buy a car to get you to and from work is a necessity of life. All consumers require routes to accessible credit, even if they’ve experienced repayment issues in the past.
If you have bad credit and are looking at your borrowing options, you may discover that the types of loans that you’re being offered, at the best interest rates are home refinancing options. What this means is that you’ll be freeing up money from your property, without impacting your current mortgage. This is sometimes called a second charge against your property.
Interest rates on these types of loans can vary greatly. Poor credit loans or home refinancing loans can sometimes charge a much higher interest rate than ordinary Personal Loans. That’s because what are often called sub-prime lenders are exposing their business to applicants who may struggle to repay their loans. It pays to shop around for the best rate or to use a loan broker who can access a range of trusted lenders to find the best interest rates and terms available for your personal circumstances.
Avoiding the cost of a re-mortgage
One of the the main benefits of using bad credit secured loan or home loan refinancing, is that it doesn’t impact your current mortgage agreement or affect your monthly obligations to your mortgage lender. These secured loans can be a lifeline if you are unable to obtain an unsecured loan via the usual channels. And can also help you avoid re-mortgage administration or porting costs too.
Refinancing loans or loans secured on your home can be used for any purpose, just like an unsecured personal loan can. So that new car, travel plans or home improvement project could be within your reach, after all.
Managing Secured Loan repayments
When you secure a loan on your property or any other assets that are valuable to you, it’s important that the repayments are manageable to you, and that have a plan for repaying. Your lender will carry out vital income and affordability checks as part of the loan application process. However, you know better than anyone what your day to day living costs and monthly expenses are, so take care to protect your assets.
Creating a monthly affordability budget
One of the best ways to work out if the loan is truly affordable is to create a budget. Take some time before you apply for your loan to write down your incomings from wages, pensions and benefits. And then on a separate list, note down all of the money you spend each month. That should include everything you pay out, from essentials like your mortgage or rent obligations, water, gas and electricity costs, broadband, food and drink, travel costs and clothing. Your budget should also include the money you spend on entertainment, treats, education costs and fees, and the things you do for fun like the gym or holiday costs. Don’t forget to include an annual budget for birthday and Christmas gifts!
When you see how much you have left over at the end of the month, you’ll know how much you’re able to afford in secured loan repayments each month.
The importance of meeting your secured monthly loan repayments
Once you’ve been approved for your refinancing loan, you may want to create a loan repayment schedule to keep track of your reducing debt, and when the payments are due. If your repayments are a fixed sum, be sure to set up a Direct Debit or a Standing Order to ensure you never miss a repayment.
Throughout your term, your income and outgoings may shift. If you are feeling the pinch at any point, get in touch with your lender straight away. They may be able to provide you with a short term payment holiday or extend the loan term to make your monthly repayments smaller. A word of caution, however. This will increase the total cost of borrowing. Consider the implications before signing on the dotted line or agreeing to any changes to your loan agreement.
Consolidating your high interest debt
If you’re struggling to meet your monthly loan obligations, it may be worthwhile looking at consolidating and refinancing your high interest debts into one single secured loan. This can also help you tackle late payments and defaults that are negatively impacting your credit profile.
What are the risks involved with securing a loan against property?
Before you sign any credit agreement to secure a loan on your home, ensure you’re aware of the risks. The reason you can access lower rates loans like these with adverse credit, is because your home is collateral against you not repaying. If you default on your repayments, the lender is within their rights to repossess your property and sell it to recoup their losses.
The advantages of secured loans for refinancing
Being mindful of the risks involved with secured bad credit loans for refinancing, there are still lots of benefits that can help distressed borrowers find their way out of a period of financial instability. These include:
- More accessible loan interest rates than unsecured loans
- Being able to reduce your monthly outgoings
- Free up money so you have more monthly disposable income
- The ability to borrow to achieve your goals, from home improvements to new car ownership.