Alternative credit sources for people with bad credit
You may get rejected for a loan by a traditional bank if you have bad credit.
There are some credit products which are directly available to people in your situation, but they come at a fairly high price. Despite all this, you should not despair.
If you try hard, you can secure finance which matches your needs. You simply need some practical advice on what to do and what mistakes to avoid. Learn how to obtain finance.
Getting a Loan with Bad Credit in New Zealand
How Bad Is Bad Credit?
You should not assume anything about your credit worthiness. Request your credit report and read it with great care. If you notice any errors, you have to request their correction immediately. It may turn out that you stand better chances of getting a loan than you think.
Another important thing to understand is that the notion of bad credit is quite relative. What may be bad credit to one lender may be perfectly acceptable for another. Given this, it pays off to research as many lenders and credit products as possible.
You should act cautiously, however. The most effective strategy is to apply to several lenders within a week or two. That way, the applications will not affect your credit record adversely. Just remember that it is best to apply only to registered lenders.
You should stay away from loan sharks that will approve you right away without even looking at your credit record, but will charge very high interest rates and fees which may be impossible to pay.
There are alternative ways for obtaining finance which can be quite useful to people who have bad credit.
Credit Union Loans
Credit unions are traditionally more flexible than commercial banks when it comes to extending loans to people with bad credit. You can expect a greater amount of personal understanding. The loan officer will take into account your personal circumstances as well as your credit history. You will have the opportunity to secure a favourable deal given your situation.
Peer to Peer Loans
Peer to peer lending has been around for quite some time in New Zealand. The peer to peer or P2P loans are available from many individual lenders. These are private persons who are willing and able to provide cash to others for earning a profit. They are a lot more flexible than banks or other more traditional lenders. They do not run lengthy assessment procedures. You just have to ensure that you will be able to repay the loan.
Loans from Family & Friends
If you plan to borrow money from a person, you may consider a family member or a friend rather than a person offering P2P loans who you do not know. You will have very good chances of getting the cash which you need. You just have to ensure that the lender will feel at ease about giving cash to you. You should draw a standard loan agreement and sign it together with the lender. It is better if the loan amount is transferred from the lender's account to yours compared to getting cash.
In case your family and friends cannot afford to lend you the money which you need, they can help you out as co-signers. A co-signer with a clean credit record and a steady employment income will give you very high chances of securing a loan from a bank. You and your co-signer will have joint responsibility for repaying the loan so the risk for the lender will be lower.
Another strategy for getting a loan if you have bad credit is to place an asset as collateral. The collateral is used for securing the personal loan. In case you fail to repay it, the lender will have the right to repossess the asset. In this way, the risk for the lender is lower so you will have better chances of getting approved. Furthermore, the interest rates on secured loans are lower than those on unsecured ones so you may be able to save money as well. This solution is effective, but you have to assess your ability to repay the loan and the risk of losing your asset carefully.
What to do before taking out a bad credit loan
When you take out a bad credit loan, you have to check the total cost and the size of the monthly payments. You have to ensure that you will have sufficient income left after paying the monthly installment. If the disposable income is not sufficient for covering your living costs, then you should look for another option. You have to avoid getting into more debt.