Loans for Bad Credit

Finding the best loans for bad credit

Before applying for a loan with bad credit, it’s important to consider all your options and make sure it’s the right decision for you.

Our chart above shows some of the lenders that can offer unsecured bad credit loans, allowing you to compare the cost, eligibility criteria and other features to find the most suitable option for your situation. However, bear in mind that you may not necessarily receive the representative APR advertised; the rate you receive depends on your individual circumstances.

There are also secured loans for bad credit available but, because these require borrowers to use their property or other valuable item as collateral, they come with added risk.

You can see if you qualify for a loan by inputting some key details about you, your employment status and your income into an eligibility checker with our preferred broker Loans Warehouse, which won’t affect your credit history.

Bear in mind that a loan may not always be the best option for someone with a poor credit score. Consider alternatives and seek free debt advice if you’re struggling financially and need further support.

What is a bad credit loan?

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. For example, those with less-than-perfect credit scores may not be able to borrow as much as someone with a better credit history.

Types of loans for bad credit

There are several types of loans for bad credit that UK borrowers can choose from, including:

• Unsecured loans: Also known as personal loans, these are a common option for those who need to borrow money. They don’t require you to put forward any collateral and may be particularly suitable for those who want to take out small loans.
• Secured loans: These loans are secured against some form of collateral, typically your home. While this extra security could help you to borrow a larger sum and access lower rates than an unsecured loan, your property is at risk if you don’t keep up with repayments. They may also be called homeowner loans for bad credit.
• 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 any loans 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.
• 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 get a loan for bad credit

If, after weighing up the pros and cons and considering any alternative options, you’re certain that a loan with bad credit is right for you, these are the steps you’ll typically need to follow when you apply.

1. Work out how much you need to borrow. Before applying for a bad credit loan, calculate the amount of money you need. Don’t borrow more than necessary as this is likely to cost more in interest and increases the risk of getting into problem debt.
2. Check how much you can afford to repay. You then need to make sure you can afford to repay the sum you want to borrow. Use our loan calculator to get an estimate of how much you may need to repay each month, based on the size of your loan, your repayment term and the APR of the loan.
3. Compare loans. Research providers that can cater to borrowers with bad credit and see the loans that may be available. It’s worth looking at comparison sites, loan brokers and direct lenders.
4. Check your eligibility. Whether you apply via a broker or with a lender directly, you can often see if you are eligible for a loan before formally applying. You will need to submit some basic information, and the provider will run a soft credit check (which won’t affect your credit score).
5. Complete your loan application. Once you’ve found a suitable loan that you’re likely to be approved for, you can formally apply. The lender will need to know personal details (including your name, address, date of birth and contact information) as well as details about your finances, such as your income, regular expenditure (including rent or mortgage payments) and your employment status.
6. Wait for the lender’s decision. The lender will assess your application and will often conduct a hard credit check as part of this process. This will appear on your credit report and could affect your score. In some cases, loan companies may ask for supporting documentation before making a decision, such as proof of income, but this may not always be required. Depending on your situation and the lender, you may receive a decision on your application within minutes, but it could take longer.
7. Receive your money. After your application has been approved, you may receive your funds into your bank account on the same day, potentially within a couple of hours. However, depending on the lender, you may only receive your money on the next working day, or even after several working days.

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.
• Buy now pay later (BNPL): This could be an option for those who need to borrow money over a short period to make a purchase. If the debt is paid off on time, borrowers may not need to pay any interest, but failure to repay could lead to expensive fees and interest charges. BNPL is now regulated by the Financial Conduct Authority (FCA) so providers will run affordability checks on each customer.
• 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.