What tenant loan options are there with a bad credit rating?
Being a tenant with a bad credit score used to mean limited options.
Thankfully things have moved on and far more choices are now available today than ever before.
In the article below we discuss the most affordable options.
As a tenant you are restricted to loans that are not secured against a property, though the unsecured personal loan market is still very large.
If you have a good credit rating and income then you still have access to most of this market. With a bad credit history options can become limited and more expensive.
In this article we will assume that you have already investigated borrowing money from friends and family, so we just look at the commercial loan options that you currently have available.
1. Pay Day loan
A payday loan is simply a short-term loan designed to last you up to when you are next paid, typically no more than three or four weeks. They received a great deal of bad press due to extremely high-interest rates and charges, though these have now been limited by the UK Government and the FCA (Financial Conduct Authority).
These loans are still not cheap with rates up to approximately 1500% APR.
If you are only going to have the loan for two or three weeks, then the costs do not mount up and they are worth considering. Where many people have fallen down is if they ‘roll over’ the loan to next month, and the interest rates and charges start to mount up significantly.
So if you require a short-term loan or only a few hundred pounds, then a payday loan is an option, though one we would suggest considering only as a last resort.
2. Instalment loan
An instalment loan is another high-cost small loan, but instead of the repayment being made at the end of the month, a monthly repayment schedule is agreed (like most other loans).
APRs can range greatly from about 300% to 1,500% depending on your status and the lender.
The costs are high because this reflects a poor credit rating, so if you are looking for a more cost-effective borrowing option please consider the next loans below.
3. Doorstep loan
Doorstep loans are not new; in fact, they have been around since the 1880s in the UK, they are simply small loans from between £100 and £1500 with repayment plans of between 12 and 52 weeks.
Where these loans differ is that an agent for the loan company visits your home on a weekly basis to collect the loan repayments, usually in cash.
They are able to offer more affordable APRs of around 272% to 399% because they have found that fewer people default when someone is visiting their house.
Many people though do not like the home visits, plus the rates are still not cheap, so currently the most cost-effective of these loans is detailed below:
4. Guarantor loan
If you are a tenant with a poor credit history then currently the most affordable type of loan available to you is the guarantor type.
With APRs typically around 49.9% this is a much more affordable option.
Rather than look at your credit rating the lender looks at the rating of your guarantor - the backer for your loan.
This person would normally be a close friend or family member, someone with whom you have a good relationship.
The reason why your relationship is important is that if you fail to maintain your monthly loan repayments, then they are liable to make these payments for you, and if they do not they will receive missed payments on their credit score.
If you would like to start investigating the guarantor loan, please start by going to our compare loans table.
For more information, return to our page Guarantor loans non homeowner