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Want to borrow money but dealing with poor credit? If you’ve previously missed payments or bills or defaulted on loans, you’ll have a credit history and credit score that makes lenders wary of loaning you money in the future.
If you’ve got poor credit, you’ll likely be rejected from most standard personal loans. You’ll need to use bad credit loans, which are specifically designed for people in these circumstances. Importantly, ‘bad credit’ is not a specific type of loan, it is an umbrella term for any loan or loan providers that cater to people with damaged, impaired credit files - or people that are new to the world of credit and have no credit files. These loans come with higher interest rates and lower credit limits than other personal loans. But they can help you meet expenses or consolidate existing debt. Reliably making the monthly payments on these loans can also help you rebuild your credit score.
To find the most competitive and safest bad credit loan, try to compare as many offers as possible, from a range of lenders.
If you have bad credit and want to take out a personal loan, you’re not entirely out of luck. The financial services industry has responded to the number of Britons with poor or limited credit histories by offering specialised loan products.
Bad credit loans can be expensive, with high interest rates. The best way to minimise the costs is to compare as many loan offers as possible.
Applying for numerous bad credit loans from a full spread of lenders will be time-consuming. Additionally, as part of your formal application for these loans, lenders will typically run hard credit checks on you—the type of credit check that leaves a mark on your credit file. Other lenders will see these checks and conclude that you’re desperately searching for credit and may be unwilling to lend to you.
To gather a range of offers from across the full market without further damaging your credit report, use our loan comparison engine, powered by Monevo. Take a few moments to enter details about yourself, your financial circumstances, and how much money you’d like to borrow, and we'll fetch you a list of personalised loans offers for you to choose from, subject to lender criteria. A soft search will be conducted to assess your credit file, which won’t appear to future lenders and will preserve your existing credit score.
The interest rate you’re quoted with these offers will be a representative APR. APR (annual percentage rate) is a representation of the total cost of borrowing the funds over a year, with the interest rate plus any other fees. Representative means that just over half (51%) of people who apply for the loan will receive this rate or better. If you have especially bad credit, you’ll likely face an even higher rate.
Comparing loan offers is free, confidential, secure, and done without commitment.
Bad credit loans are designed specifically for people with poor credit scores. They’ll come with higher interest rates, to reflect the risk the lender is taking in lending to you, which means borrowing will be more expensive. But you’re more likely to be accepted, no matter what your credit score is. In fact, with some credit scores, bad credit loans will be your only borrowing option.
These loans will also typically have lower credit limits than other personal loans, so the amount you can borrow will be restricted. Depending on your lender and your personal financial situation, you can typically borrow between £500 and £10,000 with a bad credit loan. Occasionally, you can even obtain up to £50,000 with a bad credit loan.
Bad credit loans come with terms of between one month (on short-term loans) or up to 15 years. But a time period of between one and five years is most common.
You may also need to put up property or possessions as collateral or have a relative or friend with good credit guarantee your loan. You may also only be able to borrow for short periods of time. For more information about the types of bad credit loans, see below
Bad credit loans are issued by banks, credit unions, private lenders, and businesses. They can be a risky type of borrowing, but they may be the only borrowing option for some people. And consistently making the repayments on them can help repair your credit file, making you eligible for more loan products, at better rates, in the future.
You’ll likely have a low credit score or damaged credit file if you’ve:
Lenders will run credit checks on you before issuing you loan offers or approving your application. Before you apply for loans, you may want to see what your credit score is yourself, to get an idea of the type of loan product you’ll be eligible for.
There isn’t one universal credit score in the UK, but rather three credit agencies which issue independent scores, on different scales. These scores will be based on your past borrowing, repayment history, your available credit, and other personal information.
Bad credit loans are also an option for people who little credit history, especially young people who have never borrowed before.
To obtain a bad credit loan, you’ll need to be at least 18 years old and in work.
You won’t be eligible for a bad credit loan if:
There are several sub-types of bad credit loans available:
These are loans in which you use assets, such as a home or vehicle or even valuables like jewellery, as collateral on debt. If you fail to make the repayments, the lender can seize these assets. There’s risk with these loans but using an asset as security can reduce your interest rates and increase the amount you can borrow.
These are loans which are guaranteed by a third party, often a family member or relative of the borrower. If the borrower fails to make the repayments, the guarantor is financially responsible for them. The guarantor needs to fully understand their obligations when signing onto a loan with you, but these loans can come with cheaper interest rates and higher credit limits than other types of bad credit loans
These are loans that are paid back over a short period of time, usually 30 days but occasionally several months.
Still got questions about unsecured loans? You'll find answers to some common queries below:
Payday loans are notorious for their exorbitant interest rates. They’re subject to increased regulation these days—the total cost of borrowing is now capped at 100% of the loan amount—and commonly known as short-term loans. They’re usually loans that deliver up £1,000, to be paid back over one to four months. Short-term loans are a type of bad credit loans, because they have high interest rates. But you can also obtain bad credit loans that last longer—up to several years, especially if you use a guarantor or put down property as security on the loan.
You can often pay off bad credit loans early, but you may face financial penalties for doing so. The amount lenders can charge you in loan redemption penalties is limited by law, however.
Missing a payment on your bad credit loan, either due to financial difficulties or forgetfulness, will result in penalty fees and further damage your credit file. Miss enough payments and the total cost of debt will increase, you may receive default charges, have impaired credit rating, face legal proceedings, and face repossession of your home or property. If you’re struggling to make the payments on your bad credit loan, speak to your lender as soon as possible. You may be able to negotiate a realistic repayment plan with them.
*subject to lender requirements and approval. Many lenders will distribute funds on the same day as approval
If a lender has pre-approved for a loan product this means they have conducted a soft search of your credit file and there is a good chance they will lend to you. Pre-approval does not guarantee you a loan. All loans are subject to lender and provider requirements and approval.
Consolidating existing debts may involve repaying a higher rate of interest or charges, or increase the duration of repayment.
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Last reviewed: 19 November 2020
Next review: 19 December 2020