Funding Options and Loans Available to Individuals with Poor Credit
Having poor credit can really be a deal-breaker when it comes to living a relaxed and financially free lifestyle. While everyone else with good credit is able to rent or buy homes and drive around in the latest vehicles for low monthly payments, you’re paying the same kind of monthly living expenses or more while enjoying far fewer luxuries. To top it all off, it seems like there’s no way any lender would let you borrow money when you need emergency funding.
How much would you like to borrow?
Representative Example: Rates from 49.9% APR to max 1333% APR. Minimum Loan Length is 1 month. Maximum Loan Length is 36 months. Representative Example: £250 borrowed for 30 days. Total amount repayable is £310.00. Interest charged is £60.00, annual interest rate of 292% (fixed). Representative 669.35% APR (variable).
Luckily, there are at least a handful of ways people with poor credit can still raise funding with a bit of research and effort. However, you could spend lots of time searching the web for legitimate loan types that are available to individuals with poor credit, only to wind up even more disappointed and discouraged than you were when you began your search. To help you on your quest to find lenders that actually provide loans for poor credit borrowers, here’s a list of the five kinds of funding options and loans that you can probably still utilise or qualify for:
The vast majority of payday lenders do not use your credit score or history as an approval indicator at all, especially when you’re applying for smaller loan amounts in the range of £100 to £500. Since payday loans can range from £100 to £2,500 or more, larger loan amounts may initiate a soft credit check as an auxiliary precaution to ensure the individual doesn’t have a large number of other personal loans in collections. However, even for those larger payday loans, the credit score itself has nothing to do with your approval.
Instead, as the name implies, payday lenders primarily want to see proof of income and employment to verify that the money you receive on your next payday will be enough to cover the loan repayment. Essentially, you show the lender a couple of weeks or months’ worth of payslips or bank statements, depending on their specific requirements, which will vary between each lender. If you’re self-employed, they may want to see a longer work history or more bank statements to confirm the consistency and stability of your income.
Finally, you’ll need to show ID to prove that you’re a legal resident and over the age of 18, and you’ll need an active bank account with an account and sort code. A current account is important because you’ll be signing an agreement that lets the lender automatically deducted the repayment amount from your account on the date of your next payday, the same way you would let your mobile carrier auto-bill your monthly phone service payments. Thus, it’s important to ensure the repayment is available in the account on the date that it’s supposed to be withdrawn, to prevent late fees and additional interest charges.
Poor Credit Personal Loans
Poor credit personal loans are somewhat similar to easy loans in that proof of income will also be factored in and can dramatically help your chances of approval. However, small loans for bad credit lenders do still consider your credit when determining whether to deny or approve you. They’ll also use your credit score to decide how much you can borrow.
However, these loans get their name from the fact that you may still be approved for amounts ranging from £250 to £5,000, even if you have a credit score in the range of 580-620, which is still considered sub-prime. If your credit score is below 580, you’d stand a much better chance of being approved for a payday loan.
It’s also worth noting that some lenders perform a hard credit check before issuing larger loan amounts, so keep that in mind and be realistic about the loans that you apply for because it could further hurt your credit score if you’re denied. Always ask a lender if they perform a hard credit check before applying and try to avoid those who do, especially if you already have a low score.
If you’re trying to borrow the money for a specific cause such as starting a business, paying your bills, or handling a financial emergency, you could start a crowdfunding campaign and start collecting donations. You’ll need to drive traffic to the campaign and have a compelling case for why you need the funds, along with pictures that represent who you are or what it is you’re trying to achieve with the money.
Generally, interesting and well-marketed business ideas posted on entrepreneurial crowdfunding sites like Kickstarter will usually bring the most funding, but personal causes or goals can still be successful, particularly if you have a large social network to tap into. With this funding technique, you’re essentially benefiting from the pay-it-forward philosophy because there are always people who are in a position to help others succeed.
The great part about crowdfunding is that you’re not required to pay the funds back because they’re considered donation proceeds, not loans. However, if you’re trying to borrow money for a business endeavor, you could increase your chances of attracting more donations by offering products and perks in exchange for set donation amounts.
Peer-to-Peer (P2P) Lending
Peer-to-peer lending is similar to crowdfunding in that you’ll need a good business plan or reason for wanting the money. P2P lending networks let anyone give you money. However, in a P2P loan, you’re only receiving the funds from a single investor in most cases, and you’ll always be required to pay them back the loan amount plus interest.
While most P2P lenders do consider credit scores, especially for larger loan amounts, there are many who will approve applicants with scores as low as 600, which is 20 points below the sub-prime threshold. Thus, if your credit score just recently broke into the 600 club and you’re in a rush to raise funding for a great business idea, P2P lending might be an ideal route to take.
For most people with poor credit, P2P lending might be slightly out of their reach. Also, if you already have a credit score of 610, it might be wiser to keep building it and wait until your score rises above 650 to start applying for funding. For those reasons, P2P lending is the last personal borrowing option this list.
Invoice Factoring & Angel Investments for Business Owners with Poor Credit
Finally, if you’re an entrepreneur or business owner with poor credit and you need to borrow money to fund your company, invoice factoring companies and angel investors might be able to help you.
The latter (angel investments) would be considered a long shot because it will take a fair amount of networking and maybe even a degree of luck, so that’s not really a reliable short-term solution. Also, most angel investors will run a background and credit check before investing in a business, so you’d need to be on very good terms for them to overlook your poor credit and invest in your company anyway.
Invoice factoring is an ideal option for business owners with poor personal credit and whose companies don’t yet have established business credit profiles. As long as you can show that your company is already owed money for outstanding invoices. However, most invoice factoring companies will also require you to show 3-12 months of bank statements to show that you’ve been receiving the invoice payments consistently for a while.
The way this funding option works is you’re essentially borrowing money against your outstanding invoices. When the invoice comes in, it’s automatically deducted from your company’s bank account. In that way, invoice factoring is kind of like a payday loan alternative for businesses.
Payday Loans are the Most Reliable Forms of Funding for Sub-Prime Borrowers
In closing, the most widely applicable suggestion for most people who have poor credit is to simply apply for a cash advance. As long as you can show that you have a stable job that pays a reliably consistent income, you should have no problem borrowing an amount that is commensurate with your monthly income.
While the interest rates charged on this kind of loan can be quite high, payday lenders give you anywhere from 3 to 18 months to repay the full amount. Plus, many lenders will provide a discounted interest rate if you’re able to repay the loan in full in the shortest possible time period (i.e. – 90 days).
Ultimately, anyone who has a credit score below 620 might just be wasting their time by opting for any of the other options on this list. While there’s still a chance of approval, your odds of being funded on the same day are far lower than they are when you apply for a payday loan. The fact that payday lenders let you apply for loans online and receive the funds in your bank account on the same day in some cases, and they offer the highest possible approval odds for sub-prime borrowers, means that they are literally the only worthwhile funding method for people with poor credit to consider.