Loans and Poor Credit: How to Compare Your Options Sensibly

Credit problems can arise for many reasons, including periods of unemployment, unexpected household costs or previous borrowing that became difficult to manage. Once negative information appears on a credit record, future lending options can change.

Consumers comparing loans for bad credit should expect lenders to assess their present financial circumstances as well as historical information. Stable income and affordable repayments can be important factors, although previous credit issues may still influence available terms.

Understand What Appears on Your Credit Record

Before making an application, review your credit information.

This can help identify previous missed payments, defaults or other information that may form part of a lender's assessment.

Correct Inaccurate Information

Errors should not simply be accepted.

If information appears incorrect or an account does not belong to you, investigate the appropriate process for having the record reviewed.

Reduce Existing Borrowing Where Possible

Large existing credit commitments can affect affordability.

Reducing balances before applying may improve household cash flow and reduce the amount already committed every month.

Borrow for a Defined Purpose

Know exactly why the money is required and how much is needed.

Taking additional funds without a clear reason increases debt unnecessarily.

Compare Terms Instead of Advertisements

Advertisements can provide a useful starting point, but individual rates and terms may differ.

Compare the actual monthly payment, interest rate, fees and total amount repayable.

Be Careful With Long Terms

Extending a loan can create a lower monthly payment but potentially increase the amount paid overall.

Try to balance manageable repayments with a reasonable repayment period.

Consider Whether Another Loan Is Appropriate

If the household is already struggling to pay essential bills, additional borrowing may not solve the underlying difficulty.

In those circumstances, independent debt guidance may be more useful than simply adding another credit agreement.

Think Beyond Today's Application

The objective should be to strengthen finances over time.

A carefully sized loan with sustainable repayments is generally preferable to borrowing the maximum available and recreating previous financial pressure.