Individuals seek different financial products to meet their requirements. However, not every loan quote is the same. It is because parameters like- credit score, income, pending debts, credit mix, etc., define the eligibility of any person. If your credit score is low, you may struggle to qualify for better rates and vice versa.

 However, it does not imply that you cannot get a loan with a bad credit score. You may get one as some lenders deal with only poor credit profiles. They analyse factors apart from credit score to provide a poor credit loan. They require authentic proof of earnings like salary slips, self-assessments, benefits, part-time jobs, etc for the loan. If you can provide that, you may get the loan.

Although these loans are easy to get, they share some cons too. Thus, you must know every aspect of a poor credit loan before availing it. It will help you know the best amount to borrow, repayment term, ideal interest rates, additional costs that may impact the loan costs, etc.

The blog lists the best pros and cons of poor credit loans. Check whether it is right for you. If not, you can check alternative options.

Pros of Poor Credit Loans: Your gateway to swift cash needs

There are several advantages of poor credit loans you may benefit from. Here is how the loan may help you with your financial goals:

1)     Instant cash injection for short-term needs

The best part about poor credit loans is that they do not require lengthy credit checks or documentation. You may get the loan with minimal credit analysis that does not affect your credit score. Generally, you receive cash in your account within 30 minutes of application.

2)     Use it for any purpose

It is another best thing about bad credit loans. Individuals with needs like quick utility bill payments, credit card bills, financing a pipe replacement, refuelling a car, etc., can use the loan. There is no restriction to the loan’s usage unless you use it for legal purposes only. You cannot use the loan for gambling or related stuff.

3)     Easy to manage loan repayments

These poor credit loans host fixed interest rates and terms. It implies that you always know the amount to pay, unlike credit cards. When you know the amount, you can set it aside from income. It helps you avoid money mismanagement.

4)     High chances of qualify

Individuals with poor credit history can apply for these loans. It shares a better application acceptance percentage compared to other loans.  Without fearing rejection, you can get the loan. Moreover, it safeguards your credit score from dropping as well.

5)     Do not require a guarantor

A guarantor is the primary obstacle and helper in securing a loan. However, individuals who prefer privacy in financial matters may not cherish having a guarantor. If you can relate and need a loan without a guarantor, poor credit loans may help. It requires income proof as a primary mode of qualification. If you have that, you do not need a guarantor. You can get the best loans for poor credit with no guarantor, like- short-term loans, doorstep loans, quick loans, text loans, instalment loans, etc. Here, the eligibility criteria remain the same- income.

These pros of poor credit loans may help you with quick finance. Things get easy when you have someone to rely on. Partnering with the right lender for poor credit loans may make all the difference.

Now, let’s analyse the cons.

Cons of Poor Credit Loans: Some Facts to be mindful about

One cannot ignore the other part of the story- that’s–the disadvantages or the cons. Poor credit loans are helpful for low credit profiles. However, the challenges here are different. Let’s analyse the cons and the best ways to manage the impact:

1.      Higher monthly payment

As poor credit loans are short-term, these host competitive interest rates.  It implies that the interest rates may be higher than other loan products. However, they are still lower than the ones on credit cards.

With short repayment, tenure comes with high monthly repayment. It implies you may have to save more than expected to pay by the month’s deadline.

Solution: poor credit loans come with the flexibility to budget for. Individuals with sound savings can easily set aside some for loan repayments. It reduces the impact of interest rates.

2.      Missed payment penalties

Just like other loans, these loans have penalties. Lenders impose one if you skip a payment or default. Eventually, it increases the total dues on the loan. They may charge up to 1-6% of the loan costs.

Solution: 

• Choose a repayment structure that suits your income and affordability.
• Calculate the amount you can save for the monthly payment.
• Analyse the total time it may take to pay the loan amount with that much savings.

• Possibilities of loan default

If you miss payments constantly on the loan, it may lead to default. Under this, the respective lender may take legal action against you by issuing a CCJ. You may be liable for a court order to pay the dues back within a dedicated time frame. The whole thing impacts the credit score.

Solution:  Poor credit loans provide a facility to roll over the payments to the next payment date. It is not ideal for every income barrier. The debt cycle attracts high interest and penalties make it almost impossible to pay.

Thus, use the loan calculator to analyse the impact of missed payments on the loan. Borrow only the amount you can afford and can bear to pay back. If confused, financial brokers and experts like Zeolitefunds may help. They help you connect with a lender that understands your situation and provides a loan suitable to your repayment ability. It eliminates the fear of missing payments or a loan default.

Bottom line

These are some pros and cons of poor credit loans. Precisely, using the loan responsibly may land you in a better credit state and vice versa. It is an ideal facility for individuals with poor or bad credit history struggling to get a loan. Such persons may get one just by providing income proof. It helps the lender analyse your affordability and provide the loan hassle-free. Lastly, analysing these pros and cons of poor credit loans may help you borrow right.