A bad credit score calls your credibility into question, raising many doubts about your repaying capacity and, therefore, makes it all the harder to get the nod for a loan. No registered lender is authorised to lend you money without running an affordability check.
Still, if it is found that your past payment record is not up to scratch, lenders will either turn you down or charge very high interest rates, treating you as an opportunity to make profits. Unfortunately, there are some borrowers who are cursed with a very poor credit score. Not to mention, you will be hard-pressed to get approval for a loan.
Under no circumstances is it being suggested that there is no possibility at all for borrowing money. Every lender uses their own criteria to calculate the risk. Although nobody knows what methods they follow, they think beyond your credit points when it comes to deciding whether to sign off on your application.
Some lenders might be out there accepting applications from borrowers with very bad credit scores, but lower interest rates are out of your league.
There are circumstances when you might be in need of money. For instance, you lose your job. Savings fall short of cash, and you need money for urgent reasons. Of course, it is quite hard to qualify for a loan. When you have no full-time job, lenders would want to check passive income sources. Based on that income, you will get approval, but interest rates will be high. What if you have a very bad credit rating?
Loans for the unemployed may be an option
Loans for the unemployed can be a solution to deal with your problem; however, it does not hint that you will not need to prove your repaying capacity. You are considered unemployed in the absence of a full-time job, not when you are completely penniless. Lenders, here, assume that you have a passive income source that you live off until you land a new job. The passive income sources also include benefits.
Your lender will look over your monthly expenses and cash coming in to calculate whether you will be able to repay the debt. Lenders often try to ensure that you do not struggle to meet your daily expenses while paying off the debt. As you know, interest rates will be high, so it is advisable to carefully analyse your financial situation.
However, if your credit score falls in the very poor credit rating range, you will have a hard time getting approval from your lender. A very bad credit report may have worse consequences. Whether or not a CCJ has been issued against you or whether or not it is marked satisfied, it is apparent that you are habitual in making defaults. No lender would take on the risk of lending money to a person like you with a high default risk.
A few lenders may provide you with a certain sum of money, but they would expect you to have a steady income source. Getting very bad credit loans from direct lenders when you have been eased out will make it all but impossible.
What are your options, then?
This is actually a painful scenario when your credit score is ruined, and you do not have enough savings to fall back on to pay for the unexpected. If you are given a chance, you should use them as a last resort. They are very expensive, and if you fall behind on payments, the repercussions will be far-reaching. You should rather consider the following alternatives:
- Take help from your parents
You should turn to your parents if they can help bail you out. It can be upsetting when you need money and your cash flow sources have gone outside the window. Your parents may lend you money, especially if it is a small sum. Consider taking help from your friends as well if they can. It feels like going cap in hand to them, but true friends will not turn their back on you. Pay back on time to avoid your relationship being strained.
- Arrange a guarantor
Arrange a guarantor if you want to borrow money from a direct lender. As they will have to promise to repay the debt in case of a default, they reduce the risk of the lender. However, there is still no certainty that you can bargain for affordable interest rates.
- Put off if you can
If it is possible to make do with what you have, you should drop the idea of spending money on a thing you need and cannot buy from your pocket. In the interim, you should make rigorous efforts to land a new job and find ways to fix your credit rating. As you cannot turn back the clock, the previous defaults will not disappear until six years.
So, as of now, the best thing to do is to do nothing. Try to put a gap of at least one year between the last and the new loan application. Although the previous damaging signs are still there, lenders do not get worried about inquiries that are too old and defaults.
The final word
It is not a cinch to get the nod for very bad credit loans when you are out of work. Lenders will be sceptical about your repaying capacity when you do not have a steady income source. Some lenders may give the green light to your application based on your passive income, but it can throw you in at the deep end. It is suggested that you avoid these loans. Instead, use alternatives like borrowing money from your friends and family or arranging a guarantor to increase your chances of getting a loan.
Anna Johnson has more than 11 years of experience in direct lending industry of the UK. She is the Senior Content Editor at 24cashflow where she is leading a large team of loan experts. During her career, she has helped the loan aspirants to use the particular loans in the best way and improve their financial lives and status.
Anna Johnson is known for her in-depth research of the UK loan marketplace, as she has worked with many major lending firms in her career. During her educational phase, she has done a research on ‘Finance Fundamentals for Growing Business’.
