The majority of people seeking to borrow money turn to a bank loan. However, numerous individuals have a bad credit rating or don’t wish to borrow from a financial institution for ethical reasons. Alternatives to unsecured bank loans include: secured loans, payday loans, family loans and Zopa loans.
Is Bad Credit the Reason for Loan Rejections?
Whilst a bad credit rating has always been an obstacle to getting a bank loan approved, millions more loan applications are being rejected for a different reason. Bankers have grave concerns regarding whether bank loans will be repaid by those seeking to borrow money. They are worried by the state of the economy and the number of people that are going to be made redundant.
Zopa Loans Vs Bank Loans
Zopa loans offer a service that is similar to a bank loan, but people lend to people instead. Although Zopa loans specialise in customers that have good credit, they offer a lower rate of APR than is normally available via a bank loan.
Family Loans and Money Problems
Choosing to borrow money via a family loan is an ideal solution to money problems. Not only will a family loan ensure that a borrower gets a low APR relative to a bank loan, it also means that those with a bad credit history won’t need a credit check to get approval.
Secured Loans and Bad Credit
Whilst those with bad credit won’t normally be able to get an unsecured bank loan at a low APR, a secured loan may provide the answer. Whilst a secured loan can help with immediate money problems, it also gives creditors more rights in the event of loan default.
High APR Payday Loans for Bad Credit Customers
Whilst payday loans help those struggling with money problems, like paying the rent or mortgage, they charge a high APR. Given that almost all customers have bad credit, expect the rate of APR on payday loans to be upwards of 1000%. Payday loans are a no credit check loan and the rate of interest reflects the risk that the lenders are taking on.
Clear Money Problems with a Debt Solution
Taking out a bank loan when someone has bad credit can prove to be a costly exercise. Unsecured bank loans are available for bad credit customers, but they charge 50-60% APR. It may be more sensible to pursue a debt solution, such as a debt management plan or Individual Voluntary Arrangement. A debt solution may resolve money problems quicker than a bank loan.
Those struggling with money problems and bad credit may discover that a debt solution is a more sensible option to a further bank loan. Before proceeding with any debt solution, it is advisable to seek debt counselling to ensure that the correct choice is made.