This article discusses the types of loan available and what the lender expects in return.

Having a poor credit score might lead you to believe that borrowing money is out of the question. Yes, your options are limited, but that doesn’t mean that everything is out of your reach. Instead, you may have to agree to larger charges or more risk.

We will tell you the type of loans that are still available to you and what they expect in return.

Guarantor Loans

Guarantor loans help boost your perceived credit score by using a second person to vouch for you. This second person is part of the loan, and although they might not pay towards it, the lender will see at least one good credit score is in the mix.

Because this second person (with a good credit score) is attached to the loan, the lenders will see the collaboration as less of a risk than one person with a poor credit rating. As such, the interest rates will not be as high as if you applied for the loan by yourself.

Guarantors have to qualify for the position. They must be 18 or older, be a full-time worker, you cannot share a bank account with them, and you cannot be married to them. Some lenders may ask the low credit scorer, the high credit scorer, or both to own a property too.

Secured Loans

Secured loans are offers you give to a bank, confirming that the lender can take a physical item if you fail to pay. This physical item is agreed upon before the loan is given, and it can be a home, a vehicle, or any high-value item.

Secured loans often give lower interest rates because the bank already knows you can pay off the debt through the agreed object. You are less of a risk in their eyes due to this contract.

If you have a bad credit score, you might find locating and proving ownership of a high-value item difficult. This is why many low-credit-rated people opt for unsecured loans.

Unsecured Loans

These types of loans don’t need massive pre-owned items to be created. You do not need to put your home at risk of repossession. Instead, the lenders will calculate the amount of money you want to borrow with your income and expenses. This means they will see how much you earn and how much you currently spend. Lastly, they will ask when you expect to pay the whole debt back.

Using this information, the lender will decide if they can give you the loan and at what interest rate.

However, just because you have not secured a valued item to the loan doesn’t mean the lender cannot repossess your assets. If you fail to pay, the local authorities can grant the lender the rights to their money back, in whatever form that takes.

Neither you nor the lender wants to do this, as it costs to get the court involved, and it also takes time. Instead, they will likely suggest a longer lending period, with smaller monthly payments and bigger interest rates. Essentially, you may end up paying double the amount of the original loan but only paying small increments at a time.

Advantages of Poor Credit Loans

Poor credit loans may have a bad wrap for charging double the original borrowing amount, but that doesn’t mean they aren’t worth it.

One of the major benefits of a poor credit loan is the flexible repayment schedule. For example, if you’re taking out a loan with CreditNinja, they will ask you to create a personalized loan form including loan amount, repayment dates, and length of the loan. Because you have a low credit score, they will try to give you more flexibility, so they are more likely to receive their money back.

Many lenders are more lenient to low credit scorers because they would rather talk to the borrower and work out a better system than take your loan to court.

Disadvantages of Poor Credit Loans

Before you agree to a loan, you should look at the realistic implications of the agreement. Can you afford to make these payments every month for the length of time they suggest, and are you happy with the higher interest rate you will receive?

Be aware that failure to make repayments will lower your credit rating even further than before. This means the next time you need to borrow money, the process will be more difficult again, and you will receive a higher interest rate than before.