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Bad Credit Loans

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  • Get funds from companies that view you as more than your credit score.
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Understanding Bad Credit Loans

Bad credit loans aren’t bad. They help people with low credit scores. A bad credit history disqualifies you from mainstream lenders. Specialised bad credit lenders fill this gap.

These are firms that offer small loans to applicants with a poor credit history. Without a fair to good credit score, banks are unlikely to approve an overdraft, let alone a loan. Bad credit loans fill the gap, helping you meet urgent financial needs. Some can even provide same day loans.

A poor credit score isn’t a blockade to getting a loan approved. It makes it more expensive because lenders counter the higher risk with higher fees. How high the interest rates will be is based on your credit history. Not your credit score.

Credit scores are indicative only. Each lending company uses its own formulas to assess risk. And, the entries on your credit report only remain for six years. Your credit score will improve with time.

Until then, bad credit loans can be a lifeline for urgent situations. They may help with debt consolidation, which could make budgeting easier and cheaper.

For it to be cheaper, you need to understand the terms and conditions. Some lenders may have hidden fees or unfair clauses that could worsen your financial situation. Always read the fine print and clarify any doubts you may have before accepting the terms of the credit agreement.

Explore the Types of Bad Credit Loans Available

Even with a blemished past with creditors, there are a few options to get the money you need.

  • Secured Loans

Secured loans require you to offer collateral, such as your home or car. This reduces the lender’s risk and can result in lower interest rates. However, if you default on the loan, you risk losing your collateral.

  • Unsecured Loans

Unsecured loans do not need collateral, making them riskier for lenders. Because of that, they often come with higher interest rates. These loans are based on your creditworthiness and ability to repay.

  • Guarantor Loans

Guarantor loans involve a third party, like a friend or family member, who guarantees repayment in the event that you can’t keep up the repayments. This can increase your chances of approval and might result in better terms.

  • Payday Loans

Payday loans are short-term loans that are usually due on your next payday, with some lenders letting you spread the cost over several months. They offer quick cash but at a high cost. They have hefty fees and high interest rates.

  • Credit Union Loans

Credit Unions offer local lending solutions to people with poor credit scores. But, they usually lend to members only, making them unsuitable for urgent loans.

Factors to Consider Before Borrowing

Before you take out a bad credit loan, consider these key factors:

  • Repayment ability

Your ability to repay the loan needs to be your top priority. If you aren’t confident in your ability to repay, a lender won’t be either. That can lead to your loan application being rejected. Assess your monthly and expenses before applying to know how much you can repay.

If you’ll struggle to repay the amount you borrow from your next pay day, don’t apply for a payday loan. Consider spreading the cost over a longer repayment period, such as looking at 12-month loans. The longer the loan term is, the lower the monthly repayments.

  • The total cost of the loan

Before accepting an offer, calculate its cost. UK lenders issue you with a Key Facts Illustration (KFI) explaining the cost. This will show you the APR (annual percentate rate of interest), repayment amounts, and fees.

  • Hidden fees and charges

Dubious clauses can be buried in the contract. Watch for administrative fees or excessive early repayment fees.

The Credit Score Impact of Bad Credit Loans

When you’re having difficulty getting a loan approved, it’s natural to have concerns about the impact anything can have on your credit score. It’s for this reason that lenders can run one of two types of credit checks. A soft check or a hard check.

Soft checks are eligibility checks that have no impact on your credit report. Hard checks do, and these are generally run once you find a loan you want to apply and give the lender permission to run a hard credit search.

Too many loan applications that get rejected can make it even harder to get a loan approved. To stand the best chance of approval, check your credit report and use an online eligibility checker before agreeing to proceed with a loan application.

Checking Your Credit Report

There are three credit reporting agencies in the UK.

  • Experian,
  • TransUnion
  • Equifax

You can ask each of them for a copy of your statutory credit report.  It’s free. Your credit score is irrelevant, as lenders look at your credit history.

Checking Your Eligibility for Bad Credit Loans

Check the lender’s eligibility criteria to boost your loan approval chances. Look for these:

  • Minimum age: 18 or 21 years
  • UK resident
  • That you meet the minimum annual income threshold
  • Can offer proof of steady employment (if required)
  • Have a debt-to-income ratio <36%
  • Valid UK bank account

The Misconceptions of Bad Credit Loans

Lenders don’t judge you. Just your credit history.

  • Not Just for Emergencies

They can serve various needs. From consolidating debt to covering unexpected expenses, these loans offer flexibility to those who have been financially excluded from mainstream lenders, perhaps due to thin credit files. (not having taken much credit in the past six years)

  • Interest Rates Vary

Not all bad credit loans come with exorbitant interest rates. Typically, payday loans are the highest and that’s because they’re repaid earliest. They’re what’s called high-cost short-term-credit (HCSTC)

  • Rebuilding Credit

Bad credit loans can be a stepping stone to rebuilding your credit score. Responsible borrowing and timely repayments can improve your creditworthiness.

  • Reputable Lenders

Reputable lenders offer bad credit loans with fair and transparent terms.

Frequently Asked Questions

What type of loan is easiest to get with bad credit?

A guarantor loan is easier to get when you apply with a guarantor who has a good credit score.

Is it possible to get a loan with extremely bad credit?

Yes. Consider secured loans or guarantor loans. Anything that lessens the risk for the lender.

Can I get a loan with a 400 credit score?

Yes, because it is the credit history lenders use, not your credit score. If you have no credit history, specialist lenders may offer credit-building finance.

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