At some point in our life, we all feel the need to buy something without having the entire money with us. In such situations, people prefer to borrow money from a bank. However, getting your loan amount sanctioned from a bank is a taxing process. It is because banks these days check credit scores, do background checks, and verifications take time to process application, demands a guarantor, ask for any asset as collateral, and whatnot. Even after all this, your loan application might get rejected for a single reason, and it will further exacerbate your credit profile.
How About Directly Approaching a Direct Lender?
In this scenario, it is better to go for an alternative mode of financing where chances of getting a loan are much higher, even if your credit score is substandard. This mode is applying for unsecured loans for bad credit from direct lenders in the UK.
Why Should One Go To These Lenders?
Now you know about process and paperwork with a low success rate by going to a bank for a loan. Thus, these direct lenders came into the picture to meet the unmet credit demand of subprime borrowers. Let’s dive deeper and know the benefits of taking loans from these lenders:
- Applying for this type of loan by filling the loan application form takes less than 5-10 minutes, and the entire process is online. It is unlike a traditional bank wherein you have to visit personally and go through a lot of paperwork.
- These direct lenders assess your profile and give an instant decision after a few hours on the same day that whether your loan is approved or not.
- Once your loan is approved, the amount is credited to your account on the same day without any further delay.
- Another merit is that these direct lenders look beyond your credit score while assessing your loan application. They approve your loan application even when you have a history of default in loan repayment. This is something you will not experience in banks as they reject your loan request if your credit score is not satisfactory.
- These lenders do not ask for any asset to be kept as a pledged security against the loan, unlike a bank where they ask for a security.
- Banks also ask the borrower to produce a guarantor if the loan amount is high. However, these direct lenders do not ask for any guarantor.
- Even if these direct lenders reject your loan application, then also your credit score will not get affected as they use Soft Searching Technology which is not the case with traditional banks.
- You can apply for a loan for any of your personal or professional need. There are no hidden charges or processing fees. You can avail this loan for consolidating your existing debt, buy a new vehicle, throw a party, medical check-up etc. The primary eligibility conditions are: You should be 18+ years, a permanent UK citizen, a bank account in the UK, and be able to afford repayment.
This was all about why one should choose unsecured loans for bad credit borrowers from direct lenders over the traditional banking route.
But Hang On, What About The Loan Repayment?
Now that you have received the loan amount from the direct lender you applied to, time for repayment. Before applying to these loans, you should calculate the monthly payment to be made to the lender based on the amount borrowed and the rate of interest (APR i.e. Annual Percentage Repayment) they are offering. There are online calculators for it, enter the details to know your liability upfront. You are free to decide the loan’s tenor and negotiate a repayment plan with the lender. The tenor ranges from 6 months to 18 months. If you are paying your monthly instalments on time, then you are eligible to borrow additional funds from the same lender if you want to.
Devil Lies in the Details!!
However, not everything is hunky-dory with this category of loans, if you are approaching these direct lenders for a loan, then be ready for exorbitantly high-interest rates. It is because these direct lenders are taking a risk by lending to risky borrowers who do not have a decent credit file and can produce no guarantor and taking a loan without any collateral against the loan. Thus, they are charging a premium on these loans for the risk they are taking. The interest rates may vary from 0.7% to 0.8% per day. The interest rates per annum fall somewhere around 50% to 80% depending on the borrower.
Another word of caution for borrowers is to go through the loan agreement before signing it. A borrower should be 100% sure about everything written in the agreement. He should question every point that concerns him, or that is difficult to comprehend for him to avoid surprises later.