- Personal Finance»
- Mortgages & Loans
Loan Options for People with Bad Credit in the UK
The following article covers the various range of loan options for people with bad credit in the UK. If you are interested in learning more about these sectors and the lenders competing within each of them then you can learn more at Miyagi Loans. Here you will find detailed comparisons for over 150 direct lenders competing within these popular subprime markets.
Loan Options for People with Bad Credit in the UK
For those that have been turned down by the banks and mainstream lenders, it can become frustrating to know where to turn in the pursuit of a loan. There are fortunately many companies out there that are willing to say yes, although naturally with increased risk comes higher pricing. By borrowing responsibly it is possible to rebuild a damaged credit profile and one day qualify for market leading rates, but this will take lots of time and patience. On this page a range of subprime sectors will be briefly introduced that can help you today.
These services are setup in the UK and so can only help those living locally. Subprime lending here in the UK is a massive industry that has a lot to do with the relaxed laws in regulation. In comparison, over in the US many states have imposed strict APR limits and even bans in specific areas. What you will actually find is that many of the big name finance groups in America have relocated to these shores where a high volume of their business now takes place. To provide some examples of US-owned lending companies...
Lending Stream, PaydayUK, Pounds to Pocket, Speedy Cash, Sunny, The Money Shop and QuickQuid are notable brands. Each of these is highly recognisable and frequently advertised on the TV. Speedy Cash is the only company not to be seen on TV, but they do lend both online and on the high street through a range of chains that marks their prominence. These providers have been mentioned since many of them are referenced below. And so, what are the loan options for people with bad credit in the UK? Here follows a range of subprime products.
* Just as an update: It was announced in July 2014 that the FCA that regulates the industry has set a payday loan cap. This will arrive in January 2015. There are a few changes that will come into play with the main one being that a cap of 0.8% daily max can now be charged (this includes interest and all associated fees such as for transfers). *
1) Monthly Payday Loans:
These monthly products have been active for a very long time now. The first few lenders started popping up in 2003 (the main one was PaydayUK). They were created locally, but were eventually acquired by DFC Global Corp, who also control Payday Express and The Money Shop. This type of product is taken over the period of 30 days. You could typically borrow between £100 and £750, although restrictions are usually imposed on first time applications at around £300. The charges tend to vary across providers, but 30% is seen as a fair overall price (including fast funding). Using the example of 30%, you would pay £30 on every £100 that you received. This sector is still very popular today, although we have started to see competing lenders devising more flexible products such as QuickQuid through FlexCredit. Obviously, the new cap will make it difficult for many lenders to continue to trade.
2) Flexible Short Term Loans:
This is the more modern approach to lending that grants customers with much more flexibility in the repayment terms. When using a lender you could for instance borrow cash over just 7 days and you would only be charged for this period. This would be ideal for those that just need some funds for a few days, or those that may wish to put some cash in their bank account for a few days to avoid any expensive overdraft fees from being triggered. The innovator in the short term loan space is of course Wonga who launched in 2007. Other than being able to choose the specific repayment date they impressively allow you to also choose the sum to the exact £1 and so you could take out just £23 if you wished to. Wonga is open 24/7 and they send out cash within just a few hours. Just to highlight the prominence of this provider, it was recently uncovered that they approve 10,400 loans every single day. Companies looking to establish themselves in this market have been looking at new ways to stand out. Peachy and Sunny are two notable brands who not just offer flexible short terms, but they even allow you to repay over a few months time that brings us on to instalment periods.
3) Instalment Loans (3 or 6 Months):
Extended instalment terms have become increasingly popular in the UK. The idea behind this product is to hand the customers with a repayment term of 3 or 6 months. The advantage of a much longer period like this is that the repayments are spread over a much longer time that creates a repayment structure that will be much easier to control. The prices tend to be quite competitive here due to the interest being take against a reducing monthly balance. Lending Stream was the first major player to make a name in this sector. They launched in 2008 and offer a 6 month loan term. Provident's Satsuma Loans and Wizz Cash are emerging players within the instalment niche.
4) 12 Month Loans:
This could really be considered as a 12 month payday loan. The difference is a much more manageable payment structure. The costs are actually quite costly over the full year. If you borrow a full £1000 over the year then you would usually have to repay interest at £1000. Pounds to Pocket has been a key name in this sector and they are owned by Cash America International Inc who also owns QuickQuid. Pounds to Pocket launched in 2010 and so this is still an emerging market for them and their rivals. The advantage when using Pounds to Pocket is that they never close. MyMate is a new name to watch out for, with their service cost being £796.28/£1000. What is great about them is that although you can use their service over a year, you can also use it over the short term, or even for a few months. A recent brand to launch has been On Stride Financial (from Cash America). Their £1000 charge over the year would range between £146.36 and £385.91. Due to the lower cost of this product that is much cheaper than their rival services, it will be less easy to qualify with a troubled credit history.
5) Doorstep Loans:
Provident is the market leader in the doorstep sector with roots dating back to 1880. They did also operate through the Greenwood brand, but this was recently closed. Their main competitor is Shopacheck who also operate as SFS Loans. The sector costs here are reasonable, but the lender is keeping the customer repaying for as long as possible and so the client ends up paying a lot of money out to them. This type of loan is popular, but it is the most dated of all of the solutions discussed here. You don't receive any kind of online management facility with all correspondence having to run through an agent who comes to collect a payment each week. Satsuma Loans was mentioned in the instalment category above that is owned by Provident that is their take on a more modern online doorstep equivalent. Most people of course want to be able to access funds from the comfort of their own home where they can apply and receive same day cash without the involvement of any such agent. The term of this product could be a few months, but you could end up paying for much longer than a year.
6) Guarantor Loans:
Guarantor loans have been around for a good while now. FLM Loans was the original lender that sprung up in 2005 and they have now renamed their brand as Amigo Loans. This has always been a small niche sector, but it has become increasingly popular over the past year. Unlike many of the loan variants introduced above, this sector generally doesn't receive much bad press and this is due to the much more competitive pricing. For that £1000 amount over the year you would typically pay £230 or less. This assumes that you haven't applied through a broker that would attract a large fee on to the balance. The costs for these products are much lower than elsewhere since the applicant must find someone with a good credit history to back their agreement. When they do this they become responsible for the debt should it happen to default that explains the improved pricing here. Poor credit is ok, so long as you aren't currently bankrupt or on an IVA. Thousands of pounds are potentially available here with the minimum term being a year and the maximum term usually being 5 years.
7) Logbook Loans:
The final category is logbook loans. These are secured against the customer's logbook/V5. When you get into an agreement with a lender in this sector you hand them the legal right to take away your car if you don't repay them. Due to this, they are happy to take on a much wider spectrum of applicants that may include for instance those with no bank account or those that are self-employed. Some of these logbook loan companies don't even credit check that shows you that this is one of the easiest roots to source funding with poor credit. You must of course have a vehicle that qualifies into this type of agreement. A car would usually have to be no older than 10 years old and be free of finance. They typically lend up to 70% or so of the vehicle's value. The pricing tends to be expensive here. They charge a similar level of pricing as the 12 month loan lenders discussed above. These agreements can pass way above the year, but early settlements can often be made.
The products discussed above are expensive and there are cheaper alternatives out there. The cheapest solution of all comes from Credit Unions. These have strict industry caps that means that you never pay more than £2 per £100 borrowed over the month. Another solution would be to apply for and use an agreed overdraft with your bank or building society. In a follow up article we will look at these options and others in further detail.