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Finding the best bad credit loan for you

By Matt Fernell, Editor-in-Chief at Finance.co.uk.

Matt Fernell

If you have bad credit, it’s still possible to get a loan. Here’s everything you need to know about finding the right loan if you have poor credit.

Why compare bad credit loans with Finance.co.uk

We’ve partnered with Loans Warehouse to help you find a bad credit loan that works for you. 

  • Get a decision in minutes

  • Find a loan from £1,000 to £50,000

  • Poor credit history accepted

  • Quotes tailored to you

  • Compare deals from a range of trusted lenders

How to find a loan if you have bad credit

To help us find the right loan for you, there are a few things we need to know:

  • Details of your loan, including how much you want to borrow, the years you want to borrow the money over, and what the money is for.

  • Your personal information, including your name, date of birth and marital status

  • Your contact details, including your email address, phone number and residential address

  • Details of your employment, including your employment status, start date and when you get paid

  • Your financial details, including your monthly income, rent or mortgage payments and number of dependents

We’ll use this information to carry out a soft check on your credit record so our partners can check your eligibility and give you a personalised quote.

The search won’t show on your credit record or affect your score, so there’s no risk to you. Here's more information on getting a loan if you have bad credit.

What to think about when getting a loan with bad credit

Before you start getting quotes, there are a few questions you need to ask yourself.

How much do you need?

Work out how much you need, and try only to borrow what is necessary. Bad credit loans are often for relatively small amounts, but we could help you find an unsecured loan of up to £50,000.

You may need a secured loan if you need to borrow more than this. This type of borrowing works by using an asset, usually your home, as security if you’re unable to repay the loan. It means lenders are willing to offer bigger loans, but your home will be at risk.

Avoid being tempted to borrow more than you need to, even if a lender offers you a large loan. The more you borrow, the more interest you will be charged and the more expensive the loan will be overall.

Can you afford the repayments?

When applying for a loan, make sure you’re honest about your affordability. If you take out a loan that you can’t afford, you could potentially make your financial situation even worse.

Only borrow a loan with monthly repayments you can comfortably afford. It’s also worth considering the reliability of your income because you need to be confident you’ll be able to afford the repayments for the whole life of the loan.

Is a loan the cheapest form of credit for you?

Personal loans for bad credit can come with high-interest rates and fees, making them an expensive way to borrow. 

It is worth looking at other options like a 0% credit card. This type of deal can be difficult to get if you have poor credit, but it’s worth trying. They allow you to borrow at 0% interest for a number of months, so if you can pay the card off in time, you won’t pay any interest.

Do you really need one?

Before you start an application, think carefully about whether you really need a loan. If you are already struggling with your finances, borrowing more could worsen your situation. 

If the loan isn’t for something essential, consider waiting and saving up for the purchase.

What are the advantages of bad credit loans?

A bad credit loan should only be taken as a last resort, but a short-term, low-credit loan can be helpful when you need to access funds but have a poor credit history.

The advantages are:

  • They are easier to get than a bank loan

  • Repaying on time and in full could help improve your credit score

  • The application is simple, and you can get an instant decision

  • You can access money fast if you're approved

What are the disadvantages of bad credit loans?

As with any borrowing, there are risks attached to getting a bad credit loan. The drawbacks can be greater than with standard borrowing.

The disadvantages are:

  • Higher interest rates

  • Risk of repossession for secure loans

  • Expensive charges, such as arrangement, late or missed payment fees

  • Further damage to your credit score if things go wrong

What are the alternatives to bad credit loans?

Debt consolidation loans

If you’re looking for a way to reduce your debts, a debt consolidation loan could help. It allows you to borrow money to pay off what you owe, e.g. credit cards, store cards, and overdrafts, which you'll then pay back with one manageable monthly payment, ideally at a much lower interest rate.

If you’re struggling to keep track of what you owe, this can be a practical way to get control over your debt and build your credit score.

Credit building cards

A credit builder credit card is an alternative worth considering if you want to borrow money but have a poor credit score. 

These cards usually have lower credit limits and rates than bad credit loans. It's important to pay off your balance in full and on time every month to build your credit score. If you don't, your credit rating could be negatively affected, and you may also incur late payment fees and penalties.

Credit union loans

If you’re already a credit union member or belong to a community, workplace or organisation with a credit union, you could see if they are willing to lend to you.

This type of loan typically has lower rates and is much cheaper than a bad credit or short-term loan.

Peer to peer

Also known as P2P lending, this is a platform that helps people lend and borrow from each other rather than from a bank or lender.

It could be easier to get a peer-to-peer loan than a personal loan from a bank. However, it’s important to note that credit and affordability checks will still need to be performed. The interest rate you receive will be decided by your credit score.

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.

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Frequently asked questions

What is APR?

APR is short for Annual Percentage Rate. It's a calculation of the overall cost of your loan and takes into account all the costs during the term of the loan, including set up charges and the interest rate. Any extra fees are added to the loan amount before interest is calculated.

Are loans more expensive when you have bad credit?

Yes, the poorer your credit rating, the more expensive your loan will be because the interest rate will be higher. The best way to get a cheaper loan is to repair your credit rating and improve your score.

What if I can't pay my loan?

If you are unable to make repayments on your loan, you could spiral further into debt or even risk losing your home. If you miss or make late payments, you'll incur extra fees, which will add to your debt. You will also further damage your credit rating.

What is classed as bad credit?

A bad credit profile will occur if you do not repay money borrowed in line with your credit agreements or have had legal proceedings against you.

This could mean a history of: 

  • Late or missed payments
  • Unpaid debts
  • Repossession of home or assets
  • Filing for bankruptcy
  • County Court Judgements (CCJs) and Individual Voluntary Arrangements (IVAs)

Credit scoring differs between agencies and lenders, but you can access your credit report online from a credit reference agency like Experian or via an app like ClearScore.

Can I get a loan with very bad credit?

Yes, it's possible to get very bad credit loans, but it will be more difficult and expensive. A loan broker or specialist lender will have access to the widest range of loans to suit your circumstances.

What types of interest rates are available for bad credit loans?

The interest rates on bad credit loans are always higher than standard personal loans from banks or lenders. The average APR is 49% compared to around 3-5% for a bank loan.

When you apply for a bad credit loan, the interest rate you're offered may be even higher than the advertised APR and can be as high as 99% or even more in some cases.

Compare bad credit loan interest rates and use an online loan calculator to check loan costs before you apply. Before you sign any credit agreement, check the total cost of the loan and what you'll need to pay out every month.