Bad Credit Loans - What are they and who are they for?
Borrowing money when you have a poor credit rating can be difficult to impossible. Traditional lenders tend to shy away from loaning people money if they have a poor credit rating, even if the borrower's days of poor financial management are behind them. This inflexible attitude prevents approximately 20% of the population from applying for loans through these lenders. Most people in this situation are left asking, how can I borrow money if I have poor credit?
Possible solutions are non conforming loans, low doc loans or self certification loans. These loans are designed to allow the borrower to apply for a loan irrespective of their poor credit history. Whilst traditional lenders approve loans based upon your ability to service the loan, non conforming lenders tend to use your assets as security to place against your loan.
People with poor credit histories are not the only group who are generally refused credit from traditional lenders. Other groups include:
- People under 21
- The self-employed
- Pensioners/the elderly
People under 21
Across Australia more and more people are succumbing to the burden of debt. Even more disturbingly people as young as 21 and younger are getting into debt. The problem lies in the fact that we are able to access credit before we have developed the responsibility to use it. With credit comes responsibility. Unfortunately, most of us learn the hard lessons of credit through experience and not through financial education. As a consequence non conforming loans are needed by increasingly more people across the country.
Many non conforming loans allow all people 18 and above to apply for finance. This lack of an age limit allows people under the age of 21 to apply for a loan.
Typically, traditional lenders see the self-employed as a credit risk and are hesitant to approve them for a loan. This is a consequence of the banks risk assessment being primarily based upon income serviceability. It is common for the self-employed to find it difficult to substantiate their income. Despite this many people who are self employed are very solvent and some are among the wealthiest people in the country. That said most money lenders still prefer you to be on a stable salary income than to be listed as a sole trader or partnership structure.
A non-conforming loan can allow the self-employed to apply without having to substantiate their income; however you are often required to certify your ability to make repayments with an accountant's verification.
Another group that often finds it difficult to apply for credit is the elderly. This is a result of traditional lenders basing their risk assessment criteria on income serviceability. As a consequence people beyond retirement age are commonly refused credit by traditional lenders. This inflexible attitude even applies to people who have maintained an impeccable credit rating their entire lives. One possible solution is to have loan insurance to ensure the payments are protected. Unfortunately, this insurance can be prohibitively expensive as pensioners also fall into the higher end of the insurance risk assessment.
As a consequence it is often the best solution for pensioners and the elderly in general, to apply for non-conforming loans. Non-conforming lenders can provide a welcome flexibility that allows you to get approval for credit in spite of your income serviceability.
Non conforming loans can allow people to be approved for loans that might otherwise have been refused by traditional lenders. If this applies to you, a non conforming loan may be worth investigating.
If you would like Debt Relief to assist you in finding a non conforming loan then fill in the following form or call Debt Relief on 1300 781 034 8am - 8pm 7 days a week.