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What is a bad credit loan?

Bad credit loans are meant for people who have a poor credit score due either to past money troubles or limited credit history.

You can use bad credit loans for emergency expenses, such as car repair, or to consolidate debts into one simple repayment, which can make it easier to repay them and keep track. Some people take out a bad credit loan to try and improve their credit score by showing they can manage debt.

Taking out a loan when you already have a poor credit rating isn’t an easy decision to make. Anyone who has struggled with debt problems in the past will be aware of how easy it is for debt to pile up and become out of control. However, sometimes the right loan can help people in such circumstances, providing it is affordable for the borrower.

Although finding a lender that offers bad credit loans isn’t as easy as finding lenders who offer other loans, they are still available – you just need to know where to look. Our bad credit loan table will help you find some options that could work for you.

» MORE: How to check your credit score

Types of bad credit loans

Bad credit loans come in various forms. Each type of loan is suitable for different scenarios, so it takes some careful research to ensure you are applying for the type of loan that will suit your needs and circumstances.

Main types of bad credit loan

• Secured loan: Although secured loan providers tend to offer larger sums of money over a long period of time, they are often less strict about borrowers’ credit ratings as the loan is secured against a property. If the borrower fails to repay, the lender has the option to force the sale of the property to recoup the money owed, so there is less risk to the lender. For borrowers, however, borrowing this way is risky as you could lose your home, so it’s vital that you are confident you can meet the repayment responsibilities before committing to a secured bad credit loan.
• Guarantor Loans: Guarantor loans are a popular, unsecured method to obtain a loan despite having a poor credit history. If you have a close friend or loved one who is financially stable and has a good credit score, they can opt to act as a guarantor to your loan. Although you are the borrower, your guarantor agrees to cover the cost of the repayments if you are unable.
• Regular personal loan: There are various lenders who will consider offering a personal loan to people with bad credit histories. These are unsecured loans and usually come with higher interest rates, and you will have to meet other eligibility criteria, such as having a steady reliable income, and be able to afford the repayments.
• Peer-to-peer borrowing: Peer-to-peer loans are offered by private investors rather than traditional lenders. Some peer-to-peer loan options may be available to borrowers with a poor credit rating, but interest rates will usually be high and other lending criteria will apply.
• Debt consolidation loans: By merging different loans into a single loan, you can simplify your repayments with a bad credit consolidation loan. These loans come with a single level of interest from one lender, as opposed to maintaining multiple rates from multiple lenders on different debts. Debt consolidation loans can be secured or unsecured.

Applying for a bad credit loan

Before applying for a bad credit loan, you’ll want to think carefully about whether this type of loan is the best option for you. To ensure you choose the right kind of loan, ask yourself:

1. Are there cheaper alternatives available to me, such as a bank overdraft or the option of borrowing from a family member?
2. Will I be able to borrow enough?
3. Can I afford the repayments over the entire term of the loan?
4. Can I repay early without incurring charges?
5. What is the loan APR?

If you decide applying for a bad credit loan is right for you, first use our comparison table to see deals or check your eligibility.

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