How To Apply For A Bad Credit Loan, And Get Accepted
Anyone can fall on hard times and find themselves needing to borrow money. The problem is, banks and building societies can be very particular about who they lend to – if you’ve got a bad credit history, you might struggle to get credit.
Bad credit loans, as they’re informally known, are unsecured personal loans specifically designed for people whose poor credit scores would normally prevent them from getting credit.
Understanding Your Credit File
Lenders take into account a number of different variables when assessing you for credit. They get most of their information from your credit report.
Your credit report contains details of all your credit accounts – credit cards, loans, phone contracts, utilities companies etc. and notes whether you have missed payments, paid late or defaulted.
The three major companies (or credit reference agencies) in the UK which compile credit reports are Experian, Equifax and Call Credit (Noddle). These reports are used by lenders to assign you a credit score.
More info on credit reports here.
Lenders all calculate credit scores and their criteria for lending differently and, contrary to popular belief, there is no such thing as a ‘credit blacklist’.
This means you might be declined for a loan by one lender but accepted by another.
You can view your own credit report, free of charge, and it is a good way to check where you stand.
Can I Get A Loan If I Have Bad Credit?
Yes. While numerous mainstream lenders turn away people with poor credit ratings, some companies specialise in providing unsecured loans to those with bad credit history. These loans typically come with higher interest rates and more restrictions.
It can be just as hard to get a loan with no credit history as it is with bad credit history. If you’ve never borrowed before, you have no track record, good or bad, so it is difficult for lenders to determine your reliability.
Bad Credit Loans With No Guarantor
You don’t require a guarantor for any of the loans in our comparison table, so you won’t need to rely on friends or family to repay your loan if you’re unable to.
How Much Could I Borrow?
This will vary from lender to lender, but the loans in our comparison table go up to £5,000. Similarly, the time you can take to repay your loan will vary – from 1 month to 5 years.
High Rates Of Interest
One of the key things to watch out for with bad credit loans is the interest rates. Because you present more of a risk to lenders, interest rates are typically higher.
APR (annual percentage rate) is a useful tool when comparing credit products as it is calculated in a standardised way. It shows annual cost of borrowing money, including the interest rate you’ll pay and any other mandatory fees.
Lenders must advertise the representative APR of their products – this is the rate at least 51% of people will pay. It’s a good indicator for the cost of borrowing, but you need to bear in mind that the actual rate you receive may differ from the advertised APR.
As with any product, you should shop around for the best deal.
Why Have I Got A Low Credit Score?
Your credit score indicates your creditworthiness. If you always repay your debts on time, chances are you have a good credit score.
However, if you have a history of regularly missing credit card payments or making loan repayments late, this can have a negative impact on your score.
You may also have encountered more serious financial difficulties like CCJS, IVAs or bankruptcy which can further damage your rating.
How Can I Improve My Bad Credit Rating?
Your credit score is not set in stone, so you can make changes to improve it. Some changes are simple like registering to vote and ensuring your details are up-to-date.
Avoid making too many applications for credit too, as lenders are often deterred if you have previously been declined.
Start by downloading your credit report here.
Others steps take a while longer, but, if you decide to take out a poor credit unsecured loan, you could boost your score by ensuring that you make your loan repayments in full and on time each month.
Before taking out any loan, it is paramount to consider whether you can afford the repayments.
Look At The Alternatives
There are many alternative options for borrowing money, even if your credit score is low. These include:
- Credit unions
- Peer-to-peer loans
- Budgeting loans
- Bad credit credit cards
- Guarantor loans
- Secured homeowner loans
- Shopping catalogues
- You could get a loan despite having a poor credit rating
- Borrow up to £5,000 over up to 5 years
- Paying in full and on time each month could improve your credit score
- You won’t require a guarantor
- More restrictions – you might not be able to borrow as much over as long a term
- Higher interest rates
Will a bad credit loan affect my credit score?
Yes. Your application will be visible on your credit report for lenders to see. If you make your loan repayments on time each month, it could improve your credit rating, but if you miss any repayments it could cause further damage to your score.
Will my credit history be checked for a bad credit loan?
Yes. Lenders will still check your credit history, but are more forgiving with bad credit loans. This means they will often be willing to lend to you despite your poor credit rating.
How much can I borrow?
This varies from one lender to the next and depends on the type of loan you choose. You could borrow up to £50,000 with an unsecured loan.
What is the maximum loan repayment term?
Again, this will vary. Bad credit loan repayment terms usually range from 1 month up to 15 years.
What happens if I can’t make the repayments?
If you can’t make a repayment, you will be charged and may damage your credit rating.
You will also end up paying more interest as your loan term will be extended. You could be at risk of more severe financial difficulties if you persistently fail to make repayments.
You should always speak to your lender, even if the problem is only short-term.
What does APR mean?
APR stands for Annual Percentage Rate. It is a standardised way for lenders to show the yearly cost of borrowing money, including the interest rate and other mandatory charges.
Lenders must calculate the APR of their products in the same way and must tell you how much the APR is before you sign an agreement. APR can, therefore, be a useful tool when comparing credit products.
The advertised APR is a representative APR.
Representative APR means over half the people who have taken a loan of a particular size from that lender have been given that rate. This means 51% of people have been given the advertised rate, but 49% of people could be paying more.