Compare loans for bad credit
Bad credit or missed payments do not always stop you from getting a loan
What is a bad credit loan?
If you've got a low credit score or have missed payments in the past, it can be difficult to get approved for a new loan. Bad credit loans are meant for people who are less likely to be approved for credit by traditional lenders.
How do bad credit loans work?
Loans for bad credit are typically offered by specialist lenders, which instead of basing the eligibility for a loan primarily on a credit check, look at each borrower’s individual financial circumstances to decide whether they can afford the loan they are applying for.
So if you have a poor credit history or even a County Court Judgement (CCJ) on your record, you may still be able to get a loan.
What are the eligibility requirements for a bad credit loan?
To get a bad credit loan you need to:
Be a UK resident over the age of 18
Be current account holder
Be able to prove you can pay back the loan
Have a regular monthly income above a specified threshold
What is a bad credit score?
There are three credit reference agencies in the UK, and each one has its own scoring system.
They each track people's history of paying back loans and bills on time over the past six years, along with public information such as county court judgements and whether they're on the electoral roll at their current address.
All of this information is rolled up into a single credit score - with points available for things like making payments on time and not maxing out your credit cards, while points are taken away for things like missing payments or defaulting on debts.
Currently, the three agencies define a poor credit score as follows:
Experian: 0-640 points
TransUnion: 0-565 points
Equifax: 0-438 points
You have a right to check your credit score with each of them for free to see how you're doing, as well as to ensure there aren't any mistakes that could negatively impact your rating.
Credit agencies track people's history of paying back loans and bills on time over the past six years"
Types of bad credit loans
Types of bad credit loans
Personal loan
With personal loans you don’t need to put up an asset as security, which is why they are sometimes referred to as "unsecured loans". If you have bad credit, you'll likely be limited to a small number of specialist providers that offer bad credit loans. You'll also find that the interest rates offered on personal loans for people with bad credit may be much higher than on standard loans.
Secured loan
With secured loans, sometimes called "homeowner loans", you need to offer an asset (e.g. a house or car) as security, which the lender can claim if you cannot repay the loan. You are more likely to be offered a secured loan with bad credit, and you may be able to borrow a larger amount, but you need to weigh up the risks carefully. You could lose your possessions if you're unable to repay the loan.
Guarantor loan
To get this type of loan, you need to appoint a guarantor – a parent, relative or friend who is financially stable and willing to repay the loan if you cannot. Some mortgage providers insist that guarantors put up their own property as surety, meaning that they could lose their home if the debt is not repaid on time. It's important that guarantors understand the risk they are taking before getting involved.
How to choose a loan for bad credit
Comparing secured loans is important if you would like to find the best terms and rates - here are the steps you need to take during the application process...
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Choose a deal
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Pros and cons
Pros
Cons
What do I need to consider before applying for a bad credit loan?
Applying for a loan should never be a rushed decision, so it's important to take the time to consider the following questions:
Do you need to borrow urgently?
Unless you need the money immediately, it may be better to spend time improving your credit score rather than applying for a loan for bad credit. Doing so will help you secure a lower rate of interest, which, in turn, makes you less likely to default and harm your credit score in the future.
How much do you need to borrow?
The amount you borrow plays a role in being accepted for credit. It can also determine the APR you get. Typically, the larger the sum, the lower the interest rate, but it's important to only borrow what you need.
How long do you need to repay the loan?
Although a longer loan term will result in lower monthly payments, it also costs more in the long term because you pay more in interest overall. Choose a term that allows you to repay the loans as quickly as possible, while keeping monthly repayments affordable.
How much can you afford to pay each month?
Keeping monthly repayments affordable is crucial if you already have a poor credit history. Not only can a missed payment lead to extra charges, but it can also further damage your credit score, making it even more difficult to get credit in the future.
“Loans for bad credit are expensive, so make sure you run a comparison to get the best deal. Only borrow the amount you need, and choose a term that allows you to pay it off as soon possible, while keeping monthly repayments affordable. ”
Alternatives to a bad credit loan
Before taking out a bad credit loan, consider if another type of credit might be more appropriate. This depends on how much you need to borrow and what you’re borrowing it for.
Credit cards
If you only need to borrow a small amount, consider a credit building card instead of a bad credit loan. Not only are you more likely to be accepted, but if you make your repayments on time, you can improve your credit score over time.
Overdrafts
Another option for those with modest borrowing needs is to contact your bank and apply for an overdraft on your current account. This is a particularly good option if you need the security of being able to cover regular expenses every now and then.
Take a look at our detailed guide to borrowing with bad credit to find out more.
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