Borrowing may sound difficult when you have fractured finances due to poor payment behaviour. They show in your financial records in the form of a bad credit score. But if the delayed payment record persists, your score turns into a very bad credit score.
The difference in credit score is the difference in loan types
People with a bad credit score apply for a bad credit loan. While a person with a very bad credit score needs to apply for a very bad credit loan. It is basically as simple as that, but there are other differences as well.
Read below to know how the two loan types differ from each other.
What are bad credit loans?
The loans that are offered especially to people with scores between 561-720 are called bad credit loans. A provable regular income is a vital factor to get direct lender bad credit loans on guaranteed approval. The loans are typically processed online. No guarantor or collateral is required. But you may include a guarantor if you want to boost approval possibilities.
A bad credit score happens due to the following reasons –
- Credit card debt
- Missed payments
- Loan defaults
- Irregular payment history
- County Court Judgements (CCJs)
Despite the above circumstances, you can borrow through bad credit loans. As per the affordability check, if you prove your repayment ability, it is possible to avail funds. This can be proved using your current income status and recent payment record.
If in the last six months you have paid bills and debts on time, the lender will approve your loan application. At least at Figuralloans, current creditworthiness is sufficient for us to approve a bad credit loan.
Features of the loans for bad credit
- Higher rate of interest as compared to standard loans
- Both employed and self-employed can apply
- Moderate loan amounts
- Flexible repayment terms
The loans for poor credit people are mainly used for debt consolidation, emergency expenses, household bills or repair expenses.
What is a very bad credit loan?
A very bad credit loan is a borrowing solution available to fund seekers with a score between 0 and 560. Such applicants are high-risk borrowers, and strict affordability rules apply as per lending ethics.
This is why the interest rate is high, and instalments are big compared to loans for bad credit with no guarantor from a direct lender.
Reasons for very bad credit loans are –
- Bankruptcy history
- Multiple loan defaults
- IVA (Individual Voluntary Arrangement)
- Debt management plans
- Extremely low credit score
- Repeated missed payments
- Multiple loan defaults
Features of very bad credit loans
- Very high rate of interest
- Smaller loan amounts
- Stricter affordability checks
- Shorter repayment terms
- Bigger monthly instalments
- Limited lender options
Bad credit loans Vs Very bad credit loans
Here is the clear difference between the two. Read all the dissimilarities here for an easier understanding.
| Factor | Bad credit loans | Very bad credit loans |
| Credit score range | 561 – 720 | 0 – 560 |
| Interest rate | Very high rates | Lower than very bad credit loans |
| Loan amount limit | Moderate borrowing limit | Limited or lower borrowing amount |
| Loan approval chances | Easier as the applicant’s profile is less risky | Strict affordability considering high-risk profile |
| Repayment terms | Longer repayment terms | Shorter repayment terms |
Tips to improve approval chances for both the loan types
The loans may differ considerably, but the tips to boost approval possibilities are the same.
- Compare multiple deals before applying – A smart borrowing decision is possible only when you compare deals. Choose the one with the lowest APR, as that affects your monthly and total cost.
- Avoid multiple loan applications – Compare and choose one lender to apply for the loan. If you apply to many lenders at the same time, it causes multiple search footprints on your credit report.
- Borrow an affordable or small amount – The more affordable the loan amount for you, the higher the approval chances. It is one of the most effective application suggestions borrowers should follow.
- Show your repayment plan in your application – As both bad and very bad credit are high-risk profiles, lenders take you as a risky borrower. Therefore, make a repayment budget and mention it in your application. This one small tip convinces lenders about your repayment ability.
- Improve affordability – You need to first make sure you have a regular earning source with an acceptable debt-to-income ratio. Also, your payment record and bank statements for the last six months should be clean.
Therefore, you can say that….
It is possible to get both very bad credit and alsobad credit loans with no guarantor from a direct lender. As long as you can fulfil the affordability checks, availing funds is hassle-free. Both the poor and very poor credit situation are risky for lenders.
Hence, you need to try hard to prove your repayment ability. If you stick to the basic rules of affordability, it should be sufficient to avail funds. Start preparing for the application on time to avoid last-minute haphazardness and mistakes.
FAQ’s
Yes, you can, as some lenders do offer very bad credit loans. But that depends on a strict affordability check.
Yes, the bad credit loans may have a higher rate. But they are offered through customised deals.
Yes, a very bad credit score is the result of severe financial issues like multiple loan defaults. Therefore, they come with a higher interest rate.