Loans for Bad Credit

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 a limited credit history. Because people with bad credit are viewed as a higher risk by lenders, they can find it more difficult to access loans and other types of credit. This is where specialist products such as bad credit loans could help.

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

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 get out of control. However, sometimes the right loan can help people in such circumstances, providing it is affordable for the borrower.

How to get a loan with poor credit

Before you think about getting a loan, you should work out a budget so you know how much you can afford to borrow and repay each month. This will help you when you start looking at different loans as you can find one that best meets your requirements and circumstances.

You may also want to check your credit score to see if there are any easy ways to improve it, as a better credit score will help you to get a more competitive loan.

You can check your eligibility for a loan and receive quotes using the tool here. You can also browse through the options on our comparison table to find out the representative annual percentage rate (APR) of each provider, how much they lend, and the loan terms on offer. You can also see more details about their eligibility criteria.

You should only apply for a loan if you are confident of being accepted, as loan applications will appear on your credit history and could affect your score.

Why does poor credit make it difficult to get a loan?

Having a poor credit history indicates that you’ve had problems managing your finances in the past. For example, you may have a bad credit history if you’ve missed payments or defaulted on a previous loan.

When you apply for a loan, lenders will use your credit history to help them make a decision about your application. They will look at how you have handled credit in the past and work out how likely it is that you would repay a loan, and so how much of a risk you present.

Even though lenders will consider other factors, such as your income, a poor credit history can make lenders more wary about offering you a loan as they see you as a greater risk.

Not having much of a credit history can also make it difficult to get a loan, as you have little, if any, evidence to show lenders that you are a reliable borrower.

Some lenders will only offer loans to people with a good credit history, but there are specialist lenders that offer loans to those with bad credit histories. However, these loans will usually be smaller and have higher interest rates than if you applied for a loan with a better credit score.

Types of loans for bad credit

Bad credit loans come in various forms. It’s worth spending some time researching these different loan options to make sure you choose the right one for your situation.

Personal loan

There are various lenders that will consider offering a personal loan to people with bad credit histories. Personal loans are unsecured and will often come with higher interest rates than loans that offer some form of security. To qualify for an unsecured loan, you will have to meet other eligibility criteria, such as having a steady reliable income, and be able to afford the repayments.

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 or other high-value asset, such as a car. If the borrower fails to repay, the lender has the option to force the sale of the property or goods to get back the money they’re owed, so there is less risk to the lender. This means interest rates can be lower than on an unsecured loan.

For borrowers, however, there is a risk that you could lose your home, so it’s vital that you are confident you can meet the repayment responsibilities before committing to a secured loan for bad credit.

Guarantor loans

Guarantor loans are a popular, unsecured method to obtain a loan despite having a poor credit history. If you have a close family member or friend who is financially stable and has a good credit score, they can opt to act as a guarantor for your loan. Although you are the borrower, your guarantor agrees to cover the cost of the repayments if you are unable to.

If this isn’t an option for you, it is still possible to get a bad credit loan with no guarantor.

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 score, but interest rates will usually be high and other lending criteria will apply.

Debt consolidation loans

This is actually a description of what you might use a loan for. 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. However, bear in mind that consolidating your debts may mean you pay more in interest overall. Debt consolidation loans can be secured or unsecured.

Pros and cons of bad credit loans

Some of the advantages of a bad credit loan are:

• You can borrow a lump sum of money to use for many different purposes.
• As long as you repay the loan in full and on time, and manage your other credit commitments responsibly, it could contribute to improving your credit score.
• If you have bad credit, you’re more likely to be accepted for one of these loans than a standard personal loan.

However, you need to consider some of the downsides of getting a bad credit loan, including:

• These loans typically come with higher interest rates.
• You may not be able to borrow as much as someone with a good credit score.
• Your loan options are more limited as not all providers offer bad credit loans.

What to consider when taking out a bad credit loan

Before applying for a bad credit loan, you should think carefully about whether it is the best option for you.

When you take out a loan, you are taking on a debt that will need to be repaid so you need to be confident that you can afford to borrow this sum of money.

To help you decide whether a bad credit loan is right for you, ask yourself:

• Are there any cheaper alternatives available? For example, have you considered a bank overdraft or borrowing from a friend or family member?
• Do you meet the requirements? Check that you meet the basic eligibility criteria of a lender before you apply for a loan from them.
• How much can I borrow? If you have bad credit, you may not be able to borrow as much as someone with a better credit score. Consider whether you can borrow enough to meet your requirements.
• Can I afford the repayments? It’s important that you only take out a loan if you can afford to repay it in full. If you miss a payment, you could face more interest charges and penalty fees, which puts you at risk of getting into unaffordable debt. It will also be recorded on your credit file. To minimise the chances of getting behind on repayments, only borrow the amount you need; don’t take out a bigger loan just because you can.
• What is the loan’s APR? Bad credit loans typically come with high interest rates, which can make them an expensive form of borrowing. The APR tells you how much a loan will cost you over the course of a year, taking into account the interest on the loan and any fees.
• Do you need the loan immediately? If you don’t need the loan right now, it may be worth waiting before applying. You could use this time to try to improve your credit score, which could increase the number of loans you are eligible for and help you access more competitive rates of interest.

Applying for a loan with bad credit

When you apply for a loan, you should always check the eligibility criteria of the lender. Every lender has different requirements, with some only accepting applications if you earn above a certain income or if you’re not currently bankrupt, for example.

As a minimum, most lenders will require applicants to be at least 18 or 21 years of age and a UK resident.

To apply for a loan, you will need to provide the lender with personal information and details about your finances, such as your:

• name
• address
• date of birth
• contact details
• living situation, e.g. tenant, homeowner
• income
• employment status

Lenders will also run a hard credit check as part of your application. This will be recorded on your credit history.

You can check your eligibility for a loan before you formally apply. Checking your eligibility won’t affect your credit score and it allows you to see how likely you are to qualify for different loans, reducing your chances of applying for an unsuitable loan.

How to compare loans with NerdWallet

NerdWallet has partnered with Monevo to help you compare bad credit loans. You can see details about the loans that are available from different providers, including the representative APR, available loan amounts, and the length of term you could get.

You can check your eligibility for these loans by filling in the required information. This should only take a few minutes and won’t affect your credit score.

» COMPARE: Check your eligibility for bad credit loans

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