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If you have a bad credit score, borrowing money can be difficult. There are some types of loans that are specifically for people with a poor credit history.
These loans are designed to be a lifeline for those who may struggle to meet their financial obligations. However, they usually come with higher interest rates and stricter terms as lenders view them as a greater risk.
What is a bad credit score?
A credit score is a number based on your record, which lenders use to determine whether or not you are a good credit risk. It is a key factor that influences your ability to get loans or even cellular contracts. It can also affect your job prospects and housing eligibility. Having a bad credit record can be caused by many different factors such as unemployment, illness or just simply mismanagement of your finances.
Lenders consider you to be a high risk when your credit score is below 580. This is because a low credit score indicates that you may not be able to repay debts on time or at all. This can be especially true if you have recently defaulted on debt or were declared bankrupt. In such cases, you may need to undergo debt review to get your finances back on track.
If you are looking to buy a home, it is important to save a deposit before applying for a loan. This will reduce the amount that you need to borrow and can help offset the risks that your lender takes. This can save you a lot in interest payments over the term of your mortgage loan. A mortgage loan is typically the largest debt that you will ever take on, and this is why it is essential to have a solid financial plan to ensure that you can manage your repayments.
What are low credit score loans in South Africa?
A bad credit score means that instant payday loans you are viewed as a high-risk borrower by financial institutions and lenders, which is why you are likely to face higher interest rates when securing a loan. This in turn makes debt repayments more expensive, which can cause your credit score to fall further. This is a vicious cycle that can continue until you are in a position where you can afford to repay your debts and raise your credit score once more.
Thankfully, there are several loans that cater to borrowers with bad credit scores in South Africa. These include personal loans and guarantor loans. These loans can be used to fund a variety of needs, such as paying for emergencies or consolidating debt. While these loans come with higher interest rates than traditional bank loans, they can be a great way to help improve your credit score over time.
Before applying for a bad credit loan, it is recommended that you check your credit report at one of the local credit bureaus in South Africa. This is a free service and allows you to identify errors in your credit report that could be negatively impacting your credit score. In addition, you can take steps to repair your credit history by reducing your debt and paying on time. This will improve your credit score and make you a more attractive borrowing prospect.
How can I get a bad credit score loan?
If you have bad credit, it can limit your financial options. Nevertheless, it is not an impassable barrier to securing loan finance. You can apply for personal, home, or business loans that have favourable rates and terms. Alternatively, you can consider alternatives such as guarantor loans or peer-to-peer lending. However, the best way to get approved for a loan is to improve your credit score. This can be done by paying off debts, filing invoices and company accounts on time, and limiting your credit utilisation to 25% or below.
A good starting point is understanding your credit report. All South Africans are entitled to one free credit report a year from each of the three major credit bureaus, TransUnion, Compuscan, and Experian (XDS). Once you understand your report, it is important to pay off existing debts and limit your spending, as well as checking that your monthly income is sufficient for a new loan.
Another option is to secure a guarantor loan, where you will name someone who has an excellent track record of repayments as a guarantor for your loan. These loans tend to have lower interest rates than personal loans for bad credit, but you will need to be a homeowner to qualify. You may also want to consider working with a lender who specialises in providing loans for people with bad credit, as they can often provide an instant decision and offer a range of different options such as guarantor loans and non-homeowner guarantor loans.
What are the options available to me?
A bad credit score can make it difficult for you to secure loans from traditional lenders. However, you do have options that can help you meet your financial goals without the risk of a negative impact on your credit score. For example, you can seek out non-traditional loan lenders that offer personal loans with a low credit score requirement or even no credit check at all. However, it is important to keep in mind that such loans usually come with higher interest rates and may have more restrictive terms and conditions than other loans.
Another option is to apply for a guarantor loan, which allows you to borrow money with the help of someone with a good credit history. This type of loan typically requires that the guarantor is a South African homeowner, but there are also non-homeowner guarantor loans available.
