Loans

To find out if you’re eligible for a loan, you can use Comparethemarket’s loan eligibility tool when you compare loans with us. Simply answer a few questions, and we’ll be able to run a soft search on your credit file, to find out which loans you qualify for.

The main difference between a secured and unsecured loan is that a secured loan is exactly that – it’s secured against something, which is known as collateral. This could be your home or a vehicle. Because of this, secured loans can offer some of the best loan rates. However, with a secured loan, the loan provider can repossess your collateral if you’re unable to meet your repayments.

An unsecured loan doesn’t need collateral, meaning you won’t be at risk of losing your home or car, for example. However, because you’re not offering anything to secure the loan, you may be charged higher rates of interest and be unable to borrow larger amounts.

While having a good credit score is important in being accepted for a loan, having a bad credit score doesn’t mean that you’ll always be refused. A good credit score is a way of proving to lenders that you’re responsible with money, and have a history of borrowing and successfully paying off loans or other debts. This is why people with the best credit scores get the best loan rates. This is also why a poor credit score may make lenders wary of approving you for a loan.

However, there are several loan options for those with bad credit. You may not have access to the rates and amounts to borrow as others, but we have information on the sorts of loans that may be available to you, as well as ways to improve your credit score.

It depends on the type of loan you’re looking for. Do you just need to borrow £1,000? £2,000? Or maybe even £5,000? A personal loan would typically be used for borrowing these amounts, up to as much as £50,000. However, things like your credit score, income, as well as existing loans, debts and other outgoings will be taken into consideration.

If you opt for a secured loan, you’ll normally find you’re potentially able to borrow as much as £500,000, or even more, if you secure the loan against your home. It’s important to know that if you can’t meet the repayments on a secured loan, your lender could repossess the item you offered as collateral, like your car or home.

While you might be able to borrow up to £50,000, or even £500,000, it doesn’t mean that you should. Borrowing the right amount for your needs, while ensuring that you’re able to pay it back comfortably, is arguably the most important thing to consider when taking out a loan.

When a loan is advertised, you’ll see what’s called a ‘representative example’. This will show the loan amount, the interest rate, the length of the loan, the representative APR, the repayment instalment amount and the total amount payable. It will tell you what borrowing that amount of money over that time period could cost with that representative APR. Here’s what a representative example might look like.

How long you can borrow for may depend on the type of loan, and the amount you’re borrowing. Normally, personal loans can last up to 10 years, with anything over one year being considered a long-term loan.

While extending your lending period will likely bring your monthly repayments down, it’s important to know that you’ll pay more in interest over the full length of the term. Therefore, if you’re able to afford the repayments, it’s best to pay off your loan as soon as possible. 

If you need the initial security of a lower monthly repayment, consider taking out a loan that allows you to repay the debt early. This type of loan allows you to make additional payments as and when you’re able to, to help pay off your loan earlier and save money on your overall term.

The best loan rates vary according to the size and duration of the loan. If you’re looking for low interest loans, you might look to borrow over the longer term, as these loans may attract lower interest rates. 
 
But remember, you need to look at the overall cost as you’ll be paying back the loan for longer. 
 
Borrowers with poor credit records will be charged higher rates.

A homeowner loan is a type of secured loan that uses your home as collateral. Because you’re securing the loan against something as valuable as your home, it provides you with access to larger amounts to borrow, as well as potentially the best loan rates and longer loan terms.

This type of loan is potentially a better option for those with a bad credit history, as offering your home as collateral provides security to your lender. When you apply, the lender will check whether you hold enough equity in your home to borrow against.

It’s important to be aware that if you can’t meet the repayments on your homeowner loan, the provider can repossess your home. On the other hand, if you’re able to pay off your loan early, it’s likely that you’ll be charged an early repayment fee. It’s important to be aware that if you can’t meet the repayments on your homeowner loan, the provider can repossess your home. On the other hand, if you’re able to pay off your loan early, it’s likely that you’ll be charged an early repayment fee.

A soft search is a type of search on your credit file that doesn’t impact your credit score. While it will be recorded on your credit file, it won’t be visible to lenders and so can’t affect their decision to approve your loan application or not. We’ll carry out a soft search when you compare loans with us.

It depends on your loan agreement. Although providers must allow you to pay back personal loans in full, there may be fees for early repayments or overpayments. Read more on  repaying loans early.

Missing a loan repayment will likely mean you’re charged a penalty fee. It could also negatively impact your credit score, meaning you could be charged higher interest rates in future.

If you’re struggling to repay your loan, get in touch with the loan provider. They may give you more time to make the payment. Simply missing repayments will affect your credit score and you’ll be charged a fee for each one you miss.

There is the option of consolidating your loans - organisations like  Citizens Advice,  National Debtline  and  StepChange Debt Charity  can offer advice.

APR is short for annual percentage rate. It represents the cost of borrowing over 12 months and includes the interest rate as well as any other standard charges. The benefit of APR is that it allows you to compare the cost of borrowing from different lenders - the higher the APR, the more it will cost you to borrow.

When a loan is advertised, ‘representative’ APR is shown. This is the APR available to at least 51% of applicants, but it’s not necessarily what you’ll be offered. That will depend on your personal circumstances, including your credit history.

Find out  more about APR.

Searching for a loan won’t affect your credit rating. However, it’s worth noting that each time you apply for credit, a note is placed on your report saying that a business has reviewed it. 

If you make several inquiries in a short period of time because your previous applications have been unsuccessful, it may be seen as a sign that you’re in desperate need of a loan or that you’re taking on more debt than you can afford.

A payment holiday is when you take a break from paying back your loan for a certain amount of time agreed with your lender - typically three months. You may need one if you’ve lost your job, gone on maternity leave, or had unexpected bills to pay.

Remember, you’ll continue to be charged interest if you take a payment holiday and you’ll still have to pay back the loan at a later date.

It’s possible to get loans for unemployed people. But the drawback is that they usually come with very high interest rates. This could cause greater debt problems further down the line if you have difficulty meeting your repayments. Having little or no income poses a big risk to lenders so, if they do offer you a loan, they may ask you to use your home or car as collateral, or find a guarantor willing to repay the loan if you can’t.

There’s no one place to get the best loans. Your bank will usually be willing to lend you money if you have a good credit history and hold a current account with them. But that doesn’t automatically mean a bank loan is right for you.

If you’re buying a new vehicle, for example, car finance may be a better option. Or a peer-to-peer loan might be suitable if you only want to borrow a small amount for a short period. With most bank loans, you have to borrow at least £1,000 for 12 months or more, so you might end up borrowing more than you need – or can afford.

Look for a provider that lets you borrow the money you need for the cheapest monthly instalments by doing a loan comparison.