In a report released by the Financial Services Authority (FSA), about a third of mediators' files reviewed indicated that consumers were assessed inadequately in terms of judging their ability to make repayments on bad credit loans. Meanwhile, about half of the cases investigated were also shown to insufficiently judge if such borrowing was actually suitable for consumers.
A "significant number" of borrowers were also said to have been recommended to remortgage their homes, even though their credit supplier failed to demonstrate why this would be needed. Consequently such consumers were reported to incur early repayment charges which could affect their short-term attempts at debt management.
Managing director of retail markets Clive Briault said: "We are very concerned about these findings. Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history. It is therefore important that they are properly assessed and advised."
Figures from the FSA indicated that borrowing policies were of a low standard among bad credit loan lenders. None of those examined were reported to incorporate all relevant responsible lending criteria into their policies. Meanwhile, many lenders were said to be failing to put their own policies into practice such as failing to check the information that borrowers supply them with. The authority also suggested that companies are often not monitoring how their lending criteria is applied, which consequently may result "in the approval of potentially unaffordable mortgages".
"All mortgage firms must ensure they are treating their customers fairly by undertaking robust assessments of affordability and ensuring they have sound and consistently applied, lending policies," he added. Mr Briault also claimed that five companies have now been referred to the authorities as they failed to improve standards following a similar study carried out in 2005. The director indicated: "Poor sales practices in this market may lead to serious wider consequences."
Following the study, bad credit loan borrowers were recommended to make sure that they understand the various charges and risks involved when they are looking to take out a sub-prime mortgage, "particularly at a time when interest rates are rising". Consumers were also advised against stating they have a higher salary than they actually do as it is a criminal offence.
According to a further study of 20 interest-only lenders, both in the prime and sub-prime sector, the authority discovered that many companies need to improve their responsible lending criteria which provides a clear basis on judging the ability of borrowers in paying back adverse credit secured loans.
Michael Coogan, director general of the Council of Mortgage Lenders, welcomed the FSA's findings and urged all bad credit loan lenders to improve their responsible lending criteria. He added: "The sub-prime market has an important role to play in helping people with past credit problems to rehabilitate their finances. But we acknowledge that, in particular, lenders and intermediaries in the sub-prime sector need to demonstrate that they are complying fully with the FSA's responsible lending requirements."
It's happened to almost everyone at one time or another. Unexpected expenses come up and there's no paycheck left after paying all the regular bills. The answer for many is to obtain a signature or unsecured personal loan. These types of loans are used by many people but especially those with a bad credit history.
Bad credit is something that can be just overspending on your part. This is the typical attitude of many who see people in a tough financial situation. There are many more however where through no fault of their own, there's been a financial set back like a job loss. Or a child needs to go to the hospital and we all know that insurance, even when it is available doesn't cover near enough of the cost. Or how about the unexpected bills that show up when we least expect it. These are inconveniences for some but many people especially at the lower income ranges simply don't have the money cushion available to get through emergencies.
Back to the bad credit loans. Those payday type lending companies charge a heck of a lot of interest. Don't be fooled into thinking that you can afford the monthly payment. This is a common tactic to get you to agree to making those payments. What they don't explain well however, is that a large proportion of that payment is actually going to interest.
While these loans of last resort may seem like a quick way out of your money problems, they are more likely a trap to keep you in debt longer to those companies. Consider all other options before getting a bad credit loan.
Here are a few ideas:
1. Sell property. If you have things you've bought that you don't need any longer, sell them. Use EBay or a garage sale but get rid of the accumulation of stuff.
2.Work a part time job. Not my favorite but a part time pizza delivery job will get you out of debt much faster than a typical bad credit loan. And remember this possibility is just temporary until you get back on your financial feet.
3.Work out different payment options with your creditors. Mortgage companies do not want to foreclose on your home, and banks don't want to repossess your car. Bottom line is they want their money and interest. They would much prefer that you contact them directly and work out a payment plan based on your current situation then having you later quit making all payments. Contact your credit card companies and do the same. These people will also work with you. Remember however, that once you agree to something, it's important that you keep your word and deliver on those promises. This means don't promise anything you can't do.
Is your usually payment 100 dollars but you can only afford 50 and you're behind a couple of months? You should actually call the creditor first instead of having them make the first contact. Still, once on the phone, don't promise to catch up and make full payments if you cannot afford to do so. It destroys your credibility. Being behind makes you someone with a problem. Promising and not delivering makes you a liar.
There are other strategies that although uncomfortable can be used instead of a bad credit loan. Exhaust all possible options before committing to a loan from a lender of last resort.
Both Abbi Rouse & Abigail Franks are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Abbi Rouse has sinced written about articles on various topics from Personal Finance, Careers and Job Hunting and Diabetes Treatment. Abbi Rouse writes for the 1 Stop Finance Shop where you can apply online for . We specialise in all sorts of. Abbi Rouse's top article generates over 49500 views. to your Favourites.
Abigail Franks has sinced written about articles on various topics from Home Schooling, Health and Mortgage. Abigail Franks writes on a variety of subjects which include family, health, and education. For More information on bad credit loans visit the site at