Loan for
bad credit

What does it mean to have a “bad credit”?

A bad credit loan is designed for individuals with a lower credit score or a poor credit history. Those with missed repayments or limited credit history often struggle to obtain loans or secure favourable interest rates. Bad credit loans cater to these individuals, offering financial assistance despite their low credit rating or challenges. Lenders see borrowers with low credit scores as higher risk, so these loans typically have higher interest rates and stricter terms. This can provide a vital lifeline for managing finances responsibly.

What counts as a bad credit score?

A bad credit score typically falls below 580 on most credit rating scales. Credit scores range from 300 to 850, with higher scores indicating better creditworthiness. A score below 580 suggests a history of missed payments, defaults, or other credit issues. Here’s a simple table to help understand the different credit score ranges:

A poor credit score affects your ability to get a loan and may result in higher interest rates and stricter terms.

Can I get a loan if I have bad credit?

Yes, you can get a loan with bad credit. It requires some effort to find the right lender, as they do not advertise loans specifically for bad credit. You will need to shop around, and be prepared for higher interest rates and tighter restrictions. Specialist lenders offer bad credit loans as options, but terms are less favourable than for those with good credit.

Am I eligible for bad credit loans?

To be eligible for a bad credit loan in the UK, you must:

• Be a UK resident
• Be 18 years old or over
• Have a current bank account

Lenders will also conduct a credit check and consider additional criteria, such as:

• Recent credit applications
• Outstanding balances on other credit accounts
• Any missed payments
• Employment status
• Income

They will review your credit report and consider these factors to determine if you can afford the loan and are likely to make repayments. Using an eligibility checker, like our smart search tool, can help you understand your chances of approval without impacting your credit score. This soft credit check does not affect your credit rating and ensures you only apply for loans you're likely to be approved for, avoiding unnecessary hard credit checks.

What do I need to apply for bad credit loans?

After determining your eligibility for a bad credit loan, you’ll need to gather the necessary information for the application process. Lenders typically require:

• Previous addresses
• Email address
• Employer details
• Income and expenses
• Bank account information
• Details of any County Court Judgements (CCJs)
• Information on any bankruptcy history

Lenders will conduct a hard credit check as part of the application process. This means they will thoroughly review your credit report, which can affect your credit score. They will assess your application based on the information provided, including your financial history and current circumstances, to determine approval or rejection. Using an eligibility checker beforehand can help you understand your chances of success without impacting your credit score.

What can I use my loan for when I have poor credit?

Even with a poor credit rating, you can use your loan for various purposes. Common uses include:

1. Emergency purchases: Unexpected expenses, such as medical bills or urgent home repairs, can be covered by a loan when you don't have immediate funds.
2. Home improvements: Renovations or upgrades to your home can be costly. A loan can help spread these costs, making them more manageable.
3. Buying a car: Financing a car purchase with a loan allows you to spread the cost over time, rather than paying the entire amount upfront.

It's important to remember that borrowing with bad credit comes with higher interest rates and risks. Missing repayments can further damage your credit score, so consider your options carefully before taking out a loan. If possible, use savings to cover expenses or use tools like loan calculators to understand the potential costs​

Types of loans for bad credit

Secured loans

Secured loans require collateral, such as your home or car, making them easier to obtain if you have poor credit. The collateral reduces the lender's risk, but if you fail to repay the loan, you risk repossession of your asset. Secured loans often come with longer loan terms, which can lead to paying more overall due to high interest rates. This type of loan can be beneficial but carries significant risk.

Guarantor loans

Guarantor loans involve a close family member or friend who guarantees to repay the loan if you cannot. This type of loan can give you access to a higher loan amount and potentially better terms, but it still comes with high interest rates. It’s important to consider the risk of affecting your guarantor’s finances and their future ability to borrow if you default on the loan.

Personal loans

Personal loans can be difficult to obtain with poor credit because there is no collateral for the lender. If you do qualify, you will likely face high interest rates and lower loan amounts. These loans typically come with shorter terms and higher monthly repayments. To find suitable options, you may need to seek out specialist loan providers. While convenient, personal loans can be costly due to the elevated risk perceived by lenders.

Debt consolidation loans

Debt consolidation loans are designed to help you manage multiple debts more effectively. By combining various debts into a single, more manageable loan, you can streamline your monthly payments and potentially secure a lower overall interest rate. This approach simplifies financial management and can reduce the total cost of your debts. It’s a strategic move for those looking to regain control over their financial health and improve their financial situation over time.

What are the pros and cons of loans for bad credit?

What to consider when taking out a bad credit loan?

When considering a bad credit loan, several factors need careful evaluation to ensure the loan is affordable and manageable:

1. Necessity: Assess if the loan is truly necessary or if other financial solutions exist.
2. Credit score and reports: Check your credit score and review your credit reports to understand your standing.
3. Budget plan: Create a detailed budget to ensure you can manage the loan repayments.
4. Costs: Understand all associated costs, including interest rates and fees.
5. Cosigner: Consider adding a cosigner to improve your chances of approval and potentially secure better terms.
6. Prequalify: Prequalify for loans to gauge your eligibility and compare offers without impacting your credit score.
7. Hidden costs: Be aware of any hidden fees or charges that could increase the loan’s overall cost.

Careful consideration of these factors helps ensure that a bad credit loan is affordable and manageable within your financial situation. Using tools like eligibility checkers can help you determine the best options without affecting your credit score.

Why do I have a bad credit score?

A bad credit score results from several factors that credit reference agencies consider when assessing your creditworthiness. Here are some common reasons:

1. Failed agreements: Not sticking to credit agreements and failing to repay loans or credit card balances can negatively impact your score.
2. Late payments: Consistently making late or missed payments on your credit accounts indicates poor financial management.
3. Bankruptcy: Being declared bankrupt severely damages your credit score and stays on your credit report for six years.
4. County Court Judgments (CCJs): A CCJ issued against you for unpaid debts is a significant negative mark.
5. Individual Voluntary Arrangements (IVAs): Entering an IVA to pay off debts affects your score and stays on your report for six years.
6. Limited credit history: Never borrowing money or opening a bank account means there is little information for lenders to assess your reliability.
7. Multiple hard searches: Numerous hard credit checks, often from applying for various credit products, can lower your score.

Understanding these factors can help you take steps to improve your credit score over time, ensuring better access to financial products and services.

Improving your credit score

Register to vote

Registering on the electoral roll can boost your credit rating by confirming your address for lenders. This simple step helps improve your credit score and makes you more attractive to potential creditors.

Check your credit report for errors

Review your credit report regularly to spot and correct any errors. Mistakes on your credit file can negatively impact your score, so contact the credit reference agency to fix any inaccuracies.

Pay your bills on time

Paying your bills on time and in full demonstrates responsible borrowing. This positive payment history helps improve your credit score and makes it easier to get approved for credit in the future.

Don’t make too many loan applications at once

Space out your loan applications to avoid multiple hard searches on your credit file. Too many applications in a short period can lower your credit score and make you appear desperate for credit.

Keep your credit utilisation ratio low

Try to use no more than 50% of your credit limit. Keeping your credit utilisation ratio low shows that you are borrowing responsibly, which can positively affect your credit score.

Close unused credit card accounts

Closing unused credit card accounts can improve your credit score. Unused accounts may be seen as a potential risk, so cancelling them can help present a cleaner credit profile to lenders.