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A bad credit rating can pose severe limitations on securing car loans. The credit rating may get negatively affected because of various reasons such as County Court Judgments as well as defaults or delays on credit card payments, energy bills, or any other financial liabilities.
Typically, conventional financial providers won't provide loans to borrowers with bad credit history. However, there are several finance providers, who specialize in bad credit loans. These service providers place a higher emphasis on the present ability to repay and no so much on the history. These loans can be in the range of £3,000 to 50,000. Typical loan durations are between 1 to 5 years.
Bad credit loans can be available both as secured and unsecured. In secured loans, you may have to keep another asset, such as a home, as collateral against the loan. The lender can claim this asset if you don't repay the loan. Secured loans have a lower interest rate and are available for up to 30 years. Other types of secured loans are available which ask for a guarantor, who has a home of his own. Under unsecured loans, there is no collateral needed but the interest rate may be higher.
Typical documents required are proof of earnings such as two months' bank statements, driving license, and passport or birth certificate. There could be a credit check to confirm the submitted details. In some cases, the credit check may be light such as only address, etc. but the interest rates may be higher.
Apart from providing finance, such loans can also help in improving the credit rating. If you fulfill your bad credit obligations on time, you can improve your credit score.
Not surprisingly, the interest rate for such loans is high ranging from 26% to 35%. Also, bad credit loans are structured in a way that the higher the amount, the lower the interest rate. So it can be tempting to take a bigger loan than needed, but it is best to go only for the amount that is absolutely essential.
Let's look at some real-world examples of bad credit loans for cars.