Compare bad credit loans for July 2022
Find the best bad credit loan for you
If you have bad credit, you can still get a loan. Our guide will tell you how and everything you need to know about bad credit loans.
What is a bad credit loan?
Also known as bad credit loans, bad credit loans are designed for people with bad credit history or existing bad debts.
A person who regularly fails to pay bills on time or constantly misses repayments may have a bad credit history. Their credit score will be low and they may only be eligible for so called bad credit loans or bad credit cards.
People with bad credit will find it difficult to get a home loan, take out a loan, or get financing on a car or cell phone contract.
Can I get a loan with bad credit?
Yes, you can, but the loan may be more expensive. Banks are hesitant to lend to people with bad credit, but there are specialist lenders who may be able to help.
Bad credit loans work the same way as personal loans, but are usually offered by direct lenders with higher interest rates. An online lender may accept your application even if you have bad credit, but the interest rate will be higher due to the risk of default, i.e. when you stop making the required payments on a debt.
A good first step to getting an online loan with bad credit is to check your credit score and work on fixing it so you can get better and cheaper credit in the future.
Why does bad credit make it harder to get a loan?
A low credit score, or even no credit history, makes borrowing difficult. Bad credit personal loans are harder to get because of the risk you pose to the lender.
If you want to do any of the following financial activities, a lender will check your credit score and your history of borrowing money to determine if they should lend you money.
If you want:
- Take a loan
- Get a credit card
- Subscribe to a mobile plan
- Apply for a mortgage
Then your credit score will be checked.
The better your repayment history, the higher your score will be. For lenders, this means that you are a reliable, less risky borrower and can be offered favorable interest rates for this reason.
However, if you have had trouble repaying a loan, credit card balance, or bills in the past, unfortunately your late or missed payments will result in a low credit score and lenders will view you as a high risk.
This means they may reject your application, which is why people are turning to loans for bad credit.
How much can I borrow with a bad credit loan?
The amount you can borrow with bad credit depends on the type of bad credit loan you apply for and the lender’s affordability criteria.
You may be able to get an unsecured bad credit loan of up to £25,000 from an online direct lender, but you will need to pass affordability checks and provide proof of income. Small loans for bad credit will be easier to obtain and faster to obtain.
If you want to borrow more than £25,000, a [secured loan] is a better option.
What types of interest rates are available for bad loans?
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 loan for bad credit, the interest rate offered to you may be even higher than the advertised APR and may reach 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 signing a credit agreement, check the total cost of the loan and what you will have to pay each month.
What are the different types of bad credit loans?
Bad credit loans work the same way as other types of loans, although some are easier to obtain than others.
Here are the main types of loans for people with bad credit:
Unsecured Personal Loans
This type of loan is usually charged at a lower interest rate than a credit card, although for people with bad credit, the interest rate may be higher.
The interest rate is fixed and repayments are made monthly. You can choose how long the loan is to be repaid, but the longer you delay repaying it, the more expensive the loan will be.
Short-term loans and payday loans work on the same basis but are, as the name suggests, offered for days, weeks or months rather than 12 months or more.
Collateral loans are a type of unsecured loan where someone else (usually a close friend or family member) guarantees that loan repayments will be made if you cannot make your repayments.
Both of you will need to pass affordability and credit checks, but the terms of the loan will be the same as a personal loan. This type of loan may result in a lower interest rate because your guarantor reduces your loan risk.
A secured loan is also known as a homeowner loan. As the name suggests, you must own a home with a mortgage to qualify for this type of loan.
If you have bad credit or very bad credit, you have a better chance of getting a secured loan because you are considered less risky to lenders due to the equity in your property.
However, if you are unable to repay the loan, your home may be repossessed and the equity in your home will be used to cover the money you owe.
It’s the cheapest way to borrow with bad credit, although your home is at risk if you can’t repay.
What are the benefits of loans for bad credit?
A bad credit loan should only be taken as a last resort, but a short term, low credit loan can be useful when you need access to funds but have a bad credit history.
Advantages are :
- They are easier to obtain than a bank loan
- If you repay on time and in full, it could help restore your credit score
- It’s a simple app with instant decision
- You can access cash fast if you are approved
What are the disadvantages of bad loans?
As with any loan, there are risks and the disadvantages of taking out a loan for bad credit are greater than with a standard loan.
The disadvantages are:
- Higher interest rates
- Risk of repossession for bad credit secured loans
- Expensive fees, such as arrangement, late or late payment fees
- Additional damage to your credit score if things go wrong
Are there alternatives to loans for bad credit?
Debt consolidation loans
If you are looking for a secured loan to pay off multiple debts, a debt consolidation loan allows you to borrow a fixed amount to pay off multiple debts, eg credit cards, store cards, overdrafts, which you then repay in one monthly payment.
If you’re having trouble keeping track of what you owe, this can be a helpful way to control your debt and establish your credit score.
Credit cards and bad credit cards
A credit builder credit card is worth considering if you want a small loan for bad credit. These cards have low credit limits and lower rates than a bad credit loan. However, you must repay the balance on time and in full each month to establish your credit score. If not, you could further damage your rating and face late payment fees and penalties.
Loans from credit unions
If you are a member of a credit union or belong to a community with a credit union, you can contact them and see if they would be willing to lend you. This type of loan usually has lower rates and is much cheaper than a bad credit or short term loan.
Also known as P2P lending, it is a platform that helps people lend and borrow from each other rather than from a bank or lender.
It might be easier to get a peer-to-peer loan than a personal loan from a bank, but you still need to pass credit and affordability checks. Your credit score will determine the interest rate you will be charged, so it could be high.
Bad Credit Loan FAQs
Can I get a loan with very bad credit?
Yes, it is possible to get very bad loans, but it will be more difficult and expensive. A loan broker or specialist lender will have access to the widest range of loans suited to your situation.
What is bad credit?
A bad credit profile will arise if you do not repay borrowed money in accordance with your credit agreements or if you have had legal action taken against you.
It could mean a story of:
- Late or missed payments
- Unpaid debts
- Repossession of home or property
- Filing for bankruptcy
- County Court Judgments (CCJ) and IVA
Credit scoring differs between agencies and lenders, but you can access your credit report online from a credit reference agency like Experian or through an app like ClearScore.
Are loans more expensive when you have bad credit?
Yes, the worse 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 repay my loan?
If you fail to repay your loan, you could take on more debt or even risk losing your home. If you miss or make late payments, you will incur additional charges, which will be added to your debt. You will also further damage your credit rating.
What is APR?
APR is short for Annual Percentage Rate. This is a calculation of the overall cost of your loan and takes into account all costs over the term of the loan, including the application fee and the interest rate. Any additional fees are added to the loan amount before interest is calculated.
More loan options
We compare a range of loans to help you find the best guarantor loan, short term loan, car loan or home improvement loan for you.