Loans With Bad Credit: What to Know & How to Get One
If you have bad credit, it's easy to think you won’t be able to get a loan. But there might be options available, as well as ways to boost your credit score.
Lots of people in the UK have a poor credit record. This can be for all sorts of different reasons, from late payment of a mobile phone bill to being declared bankrupt.
While having a bad credit score will make life harder if you’re looking for a loan, it is possible to get a bad credit loan.
What type of loan can I get with bad credit?
There are plenty of forms of credit that are specifically designed for borrowers with bad credit histories.
» COMPARE: Loans for borrowers with bad credit ratings
If you need to borrow a relatively small amount — a couple of thousand pounds, for example — you could go for a bad credit personal loan.
For larger sums, you may need to take out a bad credit secured loan. As the name suggests, this form of credit needs to be secured against an asset you own, such as your home or car. And it means that should you fail to keep up your loan repayments, the lender may be able to repossess that asset in order to get back what you owe.
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Guarantor loans are another option for those with poor credit scores. This is where you get a friend or family member to act as a guarantor on your loan, meaning they will step in and make repayments if you fail to do so. As the loan is assessed based on the guarantor’s financial situation as well as yours, it can help you borrow sums you may otherwise be unable to.
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You may even be able to get a mortgage despite having a bad credit score. A host of specialist lenders provide mortgages to borrowers with poor scores or county court judgements (CCJ) or bankruptcies in their history.
Finally, there are credit cards for people with bad credit or no history of credit at all. These cards tend to come with small credit limits (generally less than £1000), allowing you to spend responsibly and either rebuild your score or start building your credit from scratch.
What do I need to know about bad-credit loans?
Bad-credit loans are reliably more expensive than those offered to borrowers with excellent credit scores.
Risk — namely the risk of you failing to repay what you borrow — is one of the main factors lenders consider when working out what interest rates to charge. And if you have a bad credit score, the risk is higher than with borrowers who have proven themselves able to handle credit responsibly in the past. As a result, you likely will face higher interest rates.
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Your choices will also be more limited. While plenty of lenders are keen to work with borrowers with great credit scores, far fewer will consider bad credit borrowers.
Our price comparison site can help you identify which lenders may accept you, but if you’re looking for a mortgage you may need to use a mortgage broker. These advisers have access to lenders and products that you cannot access directly ‒ many specialist lenders only offer their products through intermediaries.
What do I need in order to take out a bad-credit loan?
Different lenders will have different criteria they look for from a prospective borrower, covering things like age, annual income and precisely which issues you’ve had in the past. Some lenders will consider you if you’ve had a CCJ but have not been made redundant, for example, while others will work with borrowers who have been through both.
In general, you will need to be at least 18 years of age and a UK resident, and have a bank account from which you can make repayments.
» MORE: When you can’t pay a loan
Can I pay back my loan early?
Personal loans must allow you to pay back your loan early. However, it's worth bearing in mind that you may have to pay a free or interest charge for doing so. Before taking out a loan, make sure you look into the terms and conditions of the loan.
If you manage a bad-credit loan responsibly — meaning you make repayments on time each month — your credit score should improve. And the time next you need to borrow, you may have more lenders to choose from.
John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more