There are approximately 6 million people in the UK who classify as being subprime customers and having bad credit ratings. This makes up around 10% of the population and whilst falling behind on payments can be due to mismanagement, it can often occur from having to deal with a challenging period such as the loss of a spouse, unemployment or health issues.
In a competitive fintech industry, there are constantly new alternatives and innovative financial products available to assist with those with subprime credit histories, as explained by Payday Bad Credit.
Low cost credit cards
Whilst zero percent credit cards are typically reserved for good credit customers, there are a number of credit cards available with bad credit which offer 0% in the first month but then a higher rate thereafter. The typical credit card rate is 18% but this can be as high as 30% for poorer credit. However, if you can repay anything that you purchase during the month, you can pay zero percent and not incur any charges in the first month or any month thereafter.
Budgeting loans
For individuals receiving government benefits, the public sector has put aside interest-free loans for those that need necessities such as food, clothing and funeral costs. The amount that individuals can borrow ranges from £100 to £812 depending on the types of benefits that you are on. For instance, having a child or a partner can make your eligible for an increased amount. Applicants must be on a certain type of benefit and have been using it for at least 6 months to be eligible. See more information here.
Secured loans
Secured loans involve using anything valuable that you own as collateral and using its value in order to borrow the amount you need. At the high end of the spectrum, you have secured loans against your property or vehicles but at the lower end, it can be items of jewellery and electronics. The amount you can borrow from secured loans can range from a few hundreds to millions of pounds (depending on the property value). A low interest rate is typically charged on top, but if you cannot repay your debt, the lender has the right to repossess your item and resell it in order to recover their costs
Borrowing from family and friends
One of the most traditional and common ways to borrow money is through family and friends. This can usually be interest free and will appeal to customers with poor credit ratings but they will not require any form of checks or affordability measures. Instead, your eligibility is based on the trust and relationship that you have with a sibling, parent or friend. The Money Advice Service recommends creating clear guidelines where borrowing amongst your peers, including mini-contracts or key terms when payments should be made or if any interest is charged.
Credit unions
Credit unions are not-for-profit organisations that involve a group of individuals or members that have a common interest. Typically, these are members of a church or local community that come together to offer low-cost loans. They can be formalised, with a few thousand credit unions across the UK in each suburb, with the average fee charged at 26% APR. Catering to subprime credit customers, applicants can borrow a few hundred pounds but must be aware that it can take a few days or weeks to receive funds.