The mark of bad credit on your report holds you back from taking out a loan. A direct lender will never lend you money if the default risk is high. Even though bad credit loans come with no obligation, you will have to prove your reimbursement capacity.

A few direct lenders provide very bad credit loans with no guarantor and no broker, but they charge high rate of interest. If you fail to pay back the whole of the debt within time, your lender will issue a CCJ against you.

Bad credit loans are the best scope for getting funds to meet your emergency needs, but the question is whether to guarantee or not to guarantee. It completely depends on circumstances.

If lenders do no sign off on your loan application because of your deplorable credit score, a guarantor loan may be the right option. However, the guarantor must have a good credit score.

If your friend or a family member has no problem to serve as a guarantor, no loans can be better than this option. The direct lender will approve your loan without further ado and you will pay lower interest rates, because lenders can call upon the guarantor if you fail to pay off the debt.

You should apply for a non-guarantor loan if no one agrees to serve as a guarantor, and at the same time, you should try to have it approved.

Should you apply for non-guarantor loans?

Online lenders understand that it is onerous to arrange a guarantor within a short time. Therefore, they provide no credit check loans with no guarantors. Yet approval is not easy. When you apply for bad credit loans, your lender will not give a toss to your credit history, but they will look over your reimbursement capacity. As long as you have a robust income statement, the lender will not deny you lending money but at higher interest rate.

These loans can cost you a small fortune because of high interest rates. Moreover, you will pay back the debt in lump sum, so carefully assess your financial condition. If you do not want to be trapped in a debt spiral, ask yourself these questions.

What exact amount should you borrow?

If you have come across an unexpected expenditure, for instance, you need £300 to have your machine repaired; you should not quote more than £300. If you can dip into your savings to pay for the repair, you should not apply for the loan. This will save your money on interest. Prefer your emergency cushion to taking out a loan.

Do you genuinely need money?

You must remember that these loans are suitable to meet emergency needs only. Do not apply for a loan if you need funds for any reason that is not urgent. Do not take out a loan for shopping frees entertainment and other recreational activities.

Can you afford to pay off?

Lump sum payment can be a big burden along with other regular expenses. It is important that you quote what you can afford. Use a loan calculator to find out your interest payments and make a budget to check your total outgoings in a month. This will give you a clear insight into your repayment capacity.

What are terms and conditions?

Being oblivious to terms and conditions of your loan agreement can take a toll on your finances. Make sure that you know about each term while closing the deal. Be careful of prepayment clause, late payment fees, upfront and application fees.

Now you can easily decide whether you should take out a guarantor loan or a non-guarantor loan.

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