Loans for bad credit

What is a bad credit loan?

A ‘bad credit’ loan is a financial product designed for people with less-than-perfect credit scores. This can often be due to historical financial difficulties or limited credit histories.

People with lower credit scores often find it more difficult to get loan applications approved. Loans designed for people with poor credit are there to provide financial options for those who may be refused credit elsewhere.

Lenders that specialise in bad credit finance will often let you borrow smaller amounts of money over shorter periods.

This means you can choose to borrow exactly what you need and keep your monthly loan repayments down to a minimum.

If you have an adverse credit history, taking out a loan may not be an easy decision to make, especially if you have struggled with your finances in the past. An unsecured loan for bad credit could be an appropriate solution if the repayments are affordable and you have an urgent need.

How to apply for a loan with poor credit?

Depending on your lender, applying for a bad credit loan can either be done online or in-store. Most people choose to apply for a loan online as it is more convenient and often takes less time. Online applications are normally available 24/7 which means you can apply for credit at any time of the day.

When you apply for a loan, most lenders will require that you:

• Are over the age of 18
• Have a valid UK bank account & debit card
• Are a UK resident

Have regular employment – full or part time

Lenders will have their own specific qualification criteria including a minimum income. It’s important to check this before you apply.

To find out more about applying for a loan, visit our FAQ section.

How much money could you borrow?

The amount of money you can borrow will depend very much on the lender and the type of finance you are applying for.

Lenders that offer smaller unsecured loans may let you borrow as little as £50 to help you through a cash emergency.

You may be able to borrow much higher amounts, often as much as £5000, if you have a good payment history and there are signs that your credit score is improving.

Some lenders may allow you to borrow even larger sums, if the loan is secured against a property or a valuable asset. Depending on your circumstances you may be able to borrow more than £10,000,

This type of loan might mean that your home could be at risk if you miss your payment obligations.

The important thing is to only borrow as much as you absolutely need. Personal loans are normally repaid with interest, so the more you borrow, the more you will have to pay back.

How long do bad credit loans take to approve?

In most cases, a bad credit loan can be approved the same day.

Once you are approved, the money is usually transferred very quickly, often the same day as approval.

If a lender requires more information from you to make a lending decision, the process can take a little longer.

Many lenders now use Open Banking to help them to understand spending habits and personal circumstances. Using Open Banking means that lenders can look beyond your credit score. They can make loan approval decisions based on accurate and up to date information.

What happens if my bad credit loan application is not approved?

Sometimes loan applications are unsuccessful.

In most cases, a decline decision will be due to the assessment of your credit history, financial management, and rules around affordability.

If your bad credit loan application is not approved, it is a good idea to check your credit report to make sure all your details are correct and up to date.

Sometimes incorrect or insufficient information can be a reason for a loan application being rejected.

3 things to consider before applying for a bad credit loan

Do you need one?

If you are struggling financially, an additional loan may put pressure on your finances in the future. If you are considering a loan for a non-essential or luxury purchases, could you delay things and save up instead?

Taking out a loan may impact your credit score. If the loan is secured against your house or car, you could risk losing them if you fail to repay your loan on time or in full.

Your credit report

A healthy credit score can be a valuable asset when managing your finances. It can help you get access to better deals and more choices.

Checking your credit report before you apply for a loan is good practice. Not only is it good to know your credit score, checking for (and fixing) any errors might improve your rating and improve your eligibility for more competitive rates.

Consider the costs

Loans for people with poor credit tend to be more costly. Before you apply for a bad credit loan, it can be useful to use a free online calculator to see what the total cost of borrowing and monthly payments might be.

You can use this to consider how the monthly repayments fit in with your monthly budget and make sure you can meet your repayments comfortably.

How long will I have to pay back the money?

The amount of time you have to pay back your loan will depend on the lender and the terms you have been offered.

Smaller loans may be paid back within a month. Larger loans may take 2-3 years. Every loan is tailored to your needs. If you are unsure of anything, it is always good to speak with a lender directly or a financial professional.

Can I repay my loan early?

In most cases your lender will allow you to repay your loan early.

Often, there is no additional charge if you want to pay back your loan early (and in doing so, can reduce the overall cost of the loan as you will save money on unpaid interest).

If you are thinking about repaying your loan early, please speak with your lender or check the terms of your credit agreement to see if there are any early repayment charges.

What is the easiest loan to get with bad credit?

Getting a loan if you have very bad credit may not always be easy.

The easiest way to apply for a loan if you have a poor credit history is online.

Applying online means can apply any time of the day from any device and normally receive a quick decision.

This means that you do not have to wait long to find out if you have been successful. If you are approved, , the money can often be transferred very quickly.

Can I apply for bad credit loan without a credit check?

If you want to apply for a bad credit loan with an FCA authorised lender. you will need to undergo a credit check as part of the process.

A credit check is a protective measure to ensure that you are not approved for a loan you may not be able to afford.

If you apply for a loan with a lender who does not perform a credit check as part of their application process, you could be putting yourself at risk as the lender would not be regulated and you will lose several protections.

Why take out a bad credit loan?

There are a number of reasons why an individual might take out a loan for bad credit. No matter how good your credit score is, we all have moments in our lives when we need access to funds that cover an emergency or a large expense.

Taking out bad credit finance simply means your credit history may prevent you from being approved by many mainstream credit providers that have a strict lending criteria.

If you need financial assistance and your credit score is less than perfect, it might make sense to consider borrowing money from a specialist lending provider able to understand your situation and take a fresh perspective.

What is bad credit score?

Good or bad, your credit score can have a big impact on your finances and your ability to get any type of loan, credit card, or mortgage.

Your credit score is a numerical value given to you by credit reference agencies, who regularly assess your spending habits and financial management.

A bad credit score is a lower-than-average credit score, which may mean different things depending on the credit bureau.

Every time you make a purchase, pay a bill or apply for finance, your activities are usually recorded by the 3 main credit bureaus. These are Experian, Transunion, and Equifax.

Each credit bureau uses a different scoring system, but one or more credit bureaus will be used by credit providers to give them an indication of an individual’s ‘credit worthiness’.

Consumer credit providers, including those who help individuals with poor credit use this information to help make appropriate lending decisions.

A bad credit score could be due to one or more of the following reasons:

• Non-existent/ limited use of credit
• Late repayments
• Going over an overdraft limit
• Missing payments
• Being declared bankrupt
• Being in a Debt Relief Order (DRO)
• Having a County Court Judgement (CCJ) made against you
• Entering an Individual Voluntary Arrangement (IVA)

If you do not know your credit score, you can easily find the information online free of charge.

Be aware of any free trials that charge you a recurring monthly fee after the trial period has finished.

Free credit score providers

Many companies offer free credit reports so you can view your credit score quickly and easily whenever you need. They can also help you build your credit score with helpful advice around money management and credit utilisation.

3 providers you might consider:

• Experian
• Clearscore
• Credit Karma

What to do if you believe your credit report is incorrect

Sometimes mistakes are made by credit bureaus. If you check your credit file and see some unusual or incorrect entries – speak to them and ask them to remove the offending entries. This is called ‘raising a dispute’.

Why does bad credit make it more difficult to get a loan?

When you apply for any type of credit, you are asking a company to lend you a sum of money that you promise to pay back.

Lenders want to make sure they will get their money back.

If you have a low credit score, this could tell a Lender that you may find it difficult to pay back the money you have borrowed. This means that it may be riskier to lend you money, as it might not be repaid.

If you have taken out credit in the past and always paid back the money in full, without missing a payment, there is a strong likelihood you will be able to do so again.

A bad credit score is simply a warning for lenders to be cautious.

If a loan provider feels that your credit score and credit history could present a risk, your application for a bad credit loan may not be approved.

What can a bad credit loan be used for?

A bad credit loan could be used for a number of emergency situations, such as:

• Paying bills
• Car repairs
• Household appliances

Sometimes people may need a loan for larger expenses such as:

• Travel expenses
• Weddings
• Vehicle purchases
• Home improvements

The important thing for a lender is that the loan you are applying for is affordable and you will be able to comfortably meet your monthly commitments.

Are loans for bad credit risky?

A bad credit loan is no different to any other type of borrowing (as long as you are borrowing from a credit provider authorised by the Financial Conduct Authority).

If you take out a loan from a company (or person) that is not authorised and regulated by the FCA, you may be putting yourself at risk.

If you are in any doubt, please check if the company details are on the FCA register.

When you apply for a loan with an authorised credit provider, the lender will assess your application and personal circumstances.

If the lender feels that you will be unable to make your loan repayments, you may be declined.

This is to reduce levels of financial risk and protect both you and the lender in the future.

Depending on your credit score and financial assessment, you may be offered a loan at a higher rate of interest if your credit score is very low.

Remember that you are under no obligation to take out a loan if you receive an offer.

Why do bad credit loans often have higher interest rates?

Bad credit loans tend to have higher rates of interest as lenders may be prepared to take a greater level of risk. This risk could be that the loan or part of the loan may not be repaid in full.

Although interest rates may be higher, the FCA introduced a price cap in 2015 for High Cost Short Term Credit (HCSTC) which limits the interest and fees charged to just 0.8% per day and ensures that the borrower never pays back more in fees and interest than the amount borrowed

To find out more about FCA price caps for HCSTC, visit here

Will a personal loan for bad credit affect my credit score?

If you take out any type of personal loan and pay it back in full and on time, it shouldn’t impact your credit score too much. It could even help you if you can demonstrate good financial management.

However, applying for any type of credit (loans, credit cards, etc) will usually mean a request from the lender to see your credit report. This type of search is commonly known as a ‘hard search and can remain on your file for up to 12 months

A hard search can have a slight impact on your credit score. Multiple hard credit searches in a short time period can have a bigger effect.

If a lender can see that you have made several bad credit loan applications in a short space of time, this may show them that you struggle to manage your money.

If you have many personal credit products (loans, credit cards, store cards etc) and have reached your credit limits for these, a Lender will also take this into account.

If you are approved for a loan and decide to accept the offer, you must pay your loan back in full and make your monthly repayments on time.

If you miss a loan repayment it can have a very negative impact on your credit score and potentially cause problems in the future.

If you ever feel that you are going to miss a loan repayment, speak to your lender first and see what can be done to help you.

Are there different types of bad credit finance?

Apart from personal loans, there are various types of financial help designed for people with bad credit that you may want to consider.

Debt consolidation loans

Debt consolidation loans: If you have multiple loan obligations through different credit providers, it may be beneficial to consolidate your loans into one single loan. This means you would only have a single loan repayment to pay each month.

These loans may offer a lower rate of interest, but you could end up paying back more if the loan is taken out over a longer period.

Guarantor loans

Guarantor Loans: This type of loan is designed for people with very bad credit scores who are unable to get a loan themselves. Usually a third party, such as a friend or relative, promises to make the repayments for you if you can’t.

Taking a loan out with a guarantor could give you access to loans with better rates of interest or higher limits. However if you struggle to keep up with your loan repayments it could mean your guarantor might risk losing their assets (such as their home) if they have secured it against the loan.

Secured loans

Secured Loans: If you have a house, car or any type of valuable asset to use as collateral, you may be able to take out a bad credit loan using your assets as security.

This type of borrowing may mean you have access to higher loan amounts as it reduces the risk for the lender.

However, if you struggle to meet your loan repayments you could risk losing your assets altogether, so you should consider this type of borrowing very carefully.

Budgeting loans

Budgeting Loans: If you receive certain benefits, you could be eligible for an interest-free loan from the UK Government. The minimum amount you could borrow is £100 (correct as of April 2024) but you could get up to:

• £348 if you’re single
• £464 if you have a partner
• £812 if you or your partner claim Child Benefit

How much you could get depends on:

• The type of benefit(s) you receive
• How long you have been receiving the benefit(s)
• If you can pay the loan back
• If you have savings of more than £1,000 (£2,000 if you or your partner are 63 or over)
• If you owe more than £1500 in total for Budgeting Loans and Crisis Loans

Are there any benefits in taking out bad credit finance?

The main advantages of loans for people with bad credit include:

• Access to finance for those with a less than perfect credit record
• Quick approval
• Fast access to funds
• No collateral required
• A starting point to rebuild your credit
• Protected by FCA price caps, if the Lender is authorised by the FCA.
• Flexible repayment schedules that allow you to borrow what you need, over a period that ensures repayments are affordable

Are there any disadvantages to applying for a bad credit loan?

Key disadvantages of bad credit finance include:

• The rate of interest charged on your loan will be higher than mainstream finance solutions
• You may not receive a loan offer to match your application (you may be offered a smaller amount)
• You can get trapped in a cycle of debt if you do not make your repayments on time

Summary: Bad credit loans

Bad credit loans are an important lifeline for millions of people who have a history of adverse credit or insufficient information on their credit files.

Taking out a loan for bad credit is an important decision that should only be taken if you are comfortable with the loan repayments and confident that you can repay your loan in full and on time.

Many people have poor credit histories and want to improve their credit scores.

Taking out a loan and paying the money back on time is an important step to rebuilding your credit history and demonstrating to lenders that you are serious about improving your financial situation.