10 May What’s the difference between a good credit and bad credit loan?
If you are not buying a house then the type of loan you are looking for is called a ‘personal loan’ as opposed to a ‘homebuyers loan’ or ‘mortgage’. The terms ‘good credit loans’ and ‘bad credit loans’ are merely marketing terms for personal loans.
Personal Loans are the same all over the world. You decide how much money you need and approach a lender who is advertising their products to one or more loan markets. All Personal Loans are differentiated by 3 things – amount of loan, interest rate and length of term. Everything else is marketing. In order to appeal to a particular type of borrower, lenders will advertise based on who they are targeting. So if you know your credit rating is less than perfect and put ‘bad credit loans UK’ into a search engine you will be shown everything related to that criteria – ‘bad credit’. All the loan companies in the UK who are after a slice of the pie you are in will be advertising for ‘bad credit loans UK’ just to pull you in.
The main difference you will find between personal loans is the interest rate charged. Loans with higher rates will be more likely to be marketed as ‘bad credit loans’ as typically people who have missed payments or failed to keep to loan agreements will be charged a higher rate to reflect the additional risk the lender is taking by lending money to someone with a history of not repaying loans.
New or young borrowers will also be charged a higher rate as they have little or no borrowing history for a lender to make a decision with. They will therefore assume a higher degree of risk until the new borrower has proven themselves over a period of time. Just like your car insurance, you should find the cost of borrowing goes down over time as long as you keep making the payments.
And that’s it. Bad credit and good credit are just search terms used by both us and the lenders to get us to where we need to get to. As a ‘bad credit’ customer you will want to know who has easier lending criteria to get through in order to get the money you need and by advertising ‘bad credit loans UK’ the lenders know they are targeting the people they have the money available to lend to.
Happy loan hunting.