Borrowers with Credit Problems

How long does it take before borrowers are offered an unsecured credit card? Credit card companies and banks want to keep their clients, which is why they will offer you an unsecured credit card provided that you make regular payments. On average, it takes about a year to build credit and qualify for an unsecured card. Secured loans and credit cards are offered to persons with less-than-perfect credit, and they are easier to obtain. Borrowers with poor credit have a better chance of getting approved for a secured loan if they offer collateral to the lender. Thus, risk is less of a factor. Applicants for a secured credit card are asked to make a deposit with the credit card issuer. If the borrower is unable to make payments, the issuer may keep the deposit.

Credit history is based on two different factors: revolving credit, such as credit cards, and instalment loans, like personal loans. Borrowers who seek to rebuild credit are advised to consider both options. At the same time, borrowers with credit problems and histories of late or missed payments are viewed as high risk. Borrowers with poor credit are usually offered outrageous interest rates or are turned down by financial institutions because of their poor credit history. That is why borrowers resort to secured loans. Those who have some valuable asset to offer against the loan stand a better chance of having their loan application approved.

Many financial institutions are willing to offer a lower interest rate to borrowers who offer collateral. Lower interest charges make payments more manageable and thus, borrowers find it easier to keep up with their monthly payments. Regular payments, on the other hand, help rebuild credit.

Using a prepaid card or a secured credit card is another way to rebuild credit. Secured credit cards are offered by mainstream banks, many credit unions, credit card companies, and other financial institutions. Some banks offer unsecured credit cards only. Many banks started offering unsecured credit cards with higher fees and interest rates and lower limits. Still, this is a good option to build or rebuild credit. Secured credit cards are intended for people who seek to establish or rebuild credit after some major event, for example, serious illness, loss of job, or divorce. To this, borrowers are advised to make sure the card issuer reports to all credit reporting agencies. If they do not, borrowers lose a major benefit.

As a rule, if you start getting offers for unsecured credit cards after having made on-time payments for several months, you will know that the card issuer is reporting. Make sure the credit card issuer does not flag the report as secured or prepaid credit card because you will find it difficult to rebuild credit this way.

Standard and High-Interest Loans Offered to Borrowers

Banks offer different types of loans to individual borrowers. The list of financial institutions includes specialist companies, credit unions, building societies, doorstep lenders, brick-and-mortar banks, as well as companies operating over the phone and online.

Interest Rates and Charges

Doorstep lenders advertise quick decision making, but this is an expensive form of financing. The annual percentage rate can be as high as 900 percent. On the positive side, they offer small amounts of less than £50. Online banks and specialist companies are a much cheaper alternative. In fact, they offer lower rates than traditional banks because they save on rent, utilities, and salaries. Credit unions also offer attractive interest rates and terms to their members. There are many credit unions such as the Manchester Credit Union, the Cash Box Credit Union, and others. They are actively engaged in fighting loan sharks and payday lenders. This is an attractive option for borrowers because of the low interest rate. Most financial establishments feature an APR of 12.7 percent or 1 percent a month. Other entities offer an APR of 26.8 percent or 2 percent on the outstanding balance. At an interest rate of 12.68 percent, if you borrow £100, your weekly repayment would be £2.05 and the total amount due – £106.56. The weekly payment on a £1,000 loan is £20.51. Most credit unions provide personal loans with a term of up to 10 years and unsecured ones for up to 5 years.

In addition to affordable interest rates, borrowers benefit from the fact that financial institutions are regulated by the Prudent Regulation Authority and the Financial Conduct Authority.

Fast Loans and Other Lenders

While payday lenders operate under the Consumer Credit Act 1974, interest rates are not regulated. Thus the interest rate offered is much higher compared to standard loans. The government has announced plans to tap interest rate charges. Not only that, but there are proposals to lower the cost of borrowing by reducing penalty and arrangement fees. The Financial Conduct Authority is to decide on the level of the cap. These measures are discussed in an effort to discipline the industry. While the government was previously reluctant to impose limitations, some large payday lenders charge interest rates of over 5,800 percent. In addition, there are loan sharks that prey on debt-ridden borrowers, young mothers, and low-income customers. They use illegal lending practices and charge high fees for their services.

Where to Get Advice

If things go wrong, you may want to contact the Citizens Advice Bureau, the National Debtline, or the Consumer Credit Counseling Service. They offer confidential advice free-of charge.