A bad credit history can affect your borrowing potential as well as loan options. Lenders will perceive you as an extremely risky borrower. As a result, they will charge high interest rates and restrict the loan amount.
What are bad credit loans in Ireland?
Bad credit loans could be secured and unsecured, depending on the loan amount. When you apply for a mortgage with bad credit, it is called a bad credit secured loan, and when you apply for a personal loan with poor credit, it is called a bad credit unsecured loan.
Loans for bad credit are not a distinct type of loan product. A loan aimed at a subprime borrower is called a bad credit borrower. Though there is a possibility of getting approval for a personal loan and a mortgage despite a less than perfect credit history, many lenders advertise bad credit loans as small emergency loans.
How does a bad credit rating affect borrowing?
If your credit rating is not up to scratch, it will certainly affect your borrowing potential.
- High interest rates
Lenders charge high interest rates in order to mitigate the risk of lending to people with payment defaults in the past. Interest rates vary by lender because it depends on how risky they find you. The higher the risk, the higher the interest rates will be.
- Lower borrowing amount
You will not be able to borrow a larger sum of money. Most lenders will cap it at €1,000. You can use these loans only for small emergencies such as medical bills and unexpected utility bills, but you cannot make large purchases such as home renovations.
How to get a loan with bad credit in Ireland
It is slightly difficult to get a bad credit loan, but it is not impossible. If you are wondering how to get a loan with bad credit in Ireland, you should use the following tips:
- Compare interest rates
Interest rates vary by lender. You should carefully compare APRs that lenders charge. Though you cannot know the actual rate unless you formally apply, comparison websites can help you choose the most affordable deal.
- Arrange a guarantor
If you are struggling to qualify for a loan due to your compromised credit history, you should arrange a guarantor. The guarantor must have a good credit rating. Since the guarantor will be called on to discharge the debt if you fail, it reduces the risk to the lender. However, note that this can ruin your relationship with the guarantor too.
- Borrow with a co-applicant
If you are borrowing a large amount of money, you should try to borrow with a co-applicant. A co-applicant is a co-borrower. If their credit score is stellar, there is a possibility of being approved.
- Apply with brokers
Applying for bad credit loans with brokers can help you qualify for bad credit loans. Since they have a large network of lenders, they will likely help you choose a lender whose acceptance criteria you meet. Personal loans for bad credit people are easy to qualify by applying through a broker.
How does a bad credit history affect your borrowing options?
There are a few types of loans that are available to subprime borrowers. Some of them come with high interest rates, while others do not.
- Credit union loans
Credit union loans are available to bad credit borrowers too, but the approval rate might not be significantly high. While credit union loans charge very low interest rates, bad credit borrowers might struggle to get them. Interest rates usually vary between 9.9% and 12.9%. In order to apply for a loan from a credit union, you need to be a member.
- Guarantor loans
Guarantor loans might help you obtain competitive interest rates because the guarantor reduces the risk to the lender, but do not expect that the loan amount will be much cheaper. Interest rates for guarantor loans will most likely be between 24.9% and 49.9%.
- Specialist bad credit loans
Specialist bad credit loan providers ensure the highest approval rate, but interest rates might not be quite attractive. They start from 19.9%. However, if you apply for a loan through the agency of a broker, there is a possibility that you get these loans at competitive interest rates.
FAQs
- Can small loans help improve my credit score?
The Central Credit Register records loans starting from €500. Therefore, to improve your credit rating, it is generally more effective to rely on larger loans, particularly instalment loans.
- Is borrowing with bad credit a bad idea?
Borrowing with bad credit is not a bad idea as long as you manage repayments responsibly. You should always borrow money based on your affordability. Otherwise, you will end up being trapped in a debt cycle.
- How can I rebuild my credit score?
In order to rebuild your credit rating, you should consider the following steps:
- Pay off your bills on time.
- Keep your credit utilisation ratio as low as possible.
- Reduce outstanding debts.
- Avoid multiple loan applications.
- Do not rely too much on small emergency loans.
- What should I do if my application is refused?
If you are turned down, you can ask your lender for the reason for rejection, but they are not obligated to tell you the reason. If you apply for a loan with a broker, they might try to find out the reason for rejection.
- Are no credit check loans available in Ireland?
No credit check loans do not exist at all. A responsible lender cannot approve a loan application without performing credit checks.
The final word
Undoubtedly, having a bad credit score is not good at all. It will affect your capacity to borrow money at affordable interest rates.
You should always try to ameliorate your credit score. Bad credit loans should be a last resort. Make sure that you use them only to fund unavoidable expenses.