Loans for Bad Credit

What is a bad credit loan?

As the name suggests, a bad credit loan is a type of loan that people with a bad credit score or a limited credit history may be eligible for.

Lenders view borrowers with poorer credit scores as a higher risk than those with good credit scores, which means those with bad credit may struggle to qualify for a standard personal loan. This is where specialist loans for bad credit can help.

You can use a bad credit loan for a range of purposes, including an emergency expense, a new car, home improvements, debt consolidation and more.

However, to minimise the risk to the lender, bad credit loans typically charge higher interest rates and come with stricter terms, such as limiting the amount you can borrow.

Types of loans for bad credit

There are several types of loans that may be available if you have bad credit, including:

• Unsecured loans: Also known as personal loans, these are a common option for those who need to borrow money. It doesn’t require you to put forward any collateral.
• Secured loans: These loans are secured against some form of collateral, typically your home. While this extra security could help you to borrow more and access lower rates than an unsecured loan, your property is at risk if you don’t keep up with repayments.
• Guarantor loans: These loans are usually unsecured and allow borrowers to name another individual as a guarantor. This could help borrowers to be approved for a loan as the guarantor agrees to repay the loan if the borrower can’t, which reduces the risk for the lender.

What to consider before applying for a bad credit loan

Before applying for a loan with bad credit, it’s important to be sure that it’s the right decision for you. Some of the questions to ask yourself include:

• Do you need a loan? Think about whether it’s essential to have a loan, or if you could manage without. Taking on extra debt may not be the best option if you’re struggling financially.
• Could you improve your credit score? If you don’t need a loan straightaway, you may be able to qualify for loans with better interest rates if you improve your credit score before applying. You can check your credit score with different agencies for free to see the latest changes.
• Can you afford to repay the loan? You should only apply for a loan if you’re confident that you can make the monthly repayments, otherwise you risk getting into debt and harming your credit score even further. You can use our loan calculator to see how much your monthly repayments could be.
• Are you eligible? Many lenders allow you to check your eligibility for a loan without affecting your credit score. Applying for a loan involves a hard credit check which will appear on your credit file, so checking your eligibility first allows you to see your chances of approval first.
• How much would the loan cost? As well as looking at the interest rate, you should also think about how much you borrow and the term you borrow over. The larger the loan and the longer the repayment period, the more you’ll need to pay back in interest.

How to apply for a bad credit loan

If you’re certain that applying for a loan with bad credit is right for you, the next step is to compare loans and check your eligibility.

You usually need to be a UK resident aged at least 18 or 21 years old to apply for a loan. Some lenders may also set further requirements, such as a minimum income, so it’s always worth checking you meet the criteria.

Lenders and brokers often allow you to see if you qualify for a loan before formally applying. This will typically involve a soft credit check, which won’t appear on your file, and you’ll need to provide your personal details along with some key financial information such as your income, rent or mortgage payments and employment status.

If you’re eligible for a loan and you’re confident that you will be approved, you can then choose to formally apply. This final stage will involve a hard credit check which will appear on your file.

Alternatives to taking out a bad credit loan

Taking out a loan when you have a bad credit history may not always be the best option. It’s worth considering some alternatives, such as:

• Overdrafts: If you have an overdraft on your current account and only need to borrow a small sum, this could be an alternative to applying for a loan. However, make sure you’re aware of all the costs involved as overdraft charges can quickly add up.
• Credit cards: There are a range of credit cards available, including credit builder cards and cards designed for people with poor credit histories. These could be a useful alternative for short-term borrowing but, as interest rates can be high, it’s important to pay off your balance to avoid accruing expensive debt.
• Community and responsible lenders: There are a range of organisations, including credit unions, that may be able to offer affordable loans and finance to those who may not be eligible for standard personal loans.
• Borrowing from friends or family: While this may not be an option to everyone, a friend or family member may be willing to lend you some money. If you do this, make sure you agree on the terms of the repayments and only borrow from someone you know and trust.
• Improving your credit score: If you don’t need a loan immediately, it may be worth taking some time to improve your credit score first as this could help you access more competitive options.