Bad credit loans

What types of loans can I get with bad credit?

While your options may be reduced, there are still loans available for people with bad credit:

• Unsecured personal loan 
  If you don’t have any assets, like a house, to use as security, then one option is an unsecured personal loan. This allows you to borrow money at a fixed interest rate and pay it back over an agreed length of time in instalments. If you have a bad credit score, expect to pay higher interest rates compared to those with a good credit score.
• Secured loan
  If you’ve been refused an unsecured personal loan in the past, you might be more successful applying for a secured loan. Secured loans are guaranteed against one of your valuable assets, which acts as your collateral. The asset may depend on the amount you’re borrowing, but common examples include your home or car. If you can’t meet your repayments regularly, you risk having that asset repossessed. No guarantor is needed with a secured loan.
• Secured homeowner loan
  A secured homeowner loan uses your home as a guarantee. No guarantor is required but, if you don’t keep up with repayments, you could lose your house. A secured homeowner loan could be used to fund home improvements, which could help improve the value of your home in future.
• Guarantor loan
  A guarantor loan is when a friend or relative promises to pay back the loan if you can’t.
• Peer to peer loan
  A peer to peer loan involves borrowing money from other individuals, rather than through a bank or building society. This type of loan can offer lower interest rates for borrowers, while the person lending the money treats your loan as an investment.  Peer to peer lending is regulated by the Financial Conduct Authority (FCA).

To qualify for a bad credit loan, you must:

• Be a UK resident
• Be at least 18 years old
• Have a current bank account

The lender will also run a hard credit check to look at your credit history. They’ll want to check you’re able to repay the loan, before lending to you.

To find out how likely you are to qualify for a bad credit loan, use our loan eligibility checker without impacting your credit score.

Having a bad credit loan refused doesn’t mean you’ll automatically be rejected if you make another application. Before you apply, though, it’s a good idea to use our eligibility checker – we’ll show you loans you’re likely to be eligible for, without any impact on your credit score.

There are several reasons why you may have been rejected for a loan:

• You have too many current loans, maxed-out credit cards and other debts.
• You have a bad credit rating because of missed payments or other debts.
• You have no credit history because you’ve never borrowed money before.
• You don’t have a steady job with a regular income.
• You don’t earn enough to comfortably pay back the loan.
• You don’t own a house or a car to put up as security against a secured loan.
• There are mistakes and inconsistencies on your application form.

There are steps you can take to increase the likelihood of being approved for a loan, most of which will also help you improve your credit score.

Check your credit report Get in touch with Experian, Equifax or TransUnion (formally CallCredit) – the three main credit reference agencies – and make sure all the information held about you is correct. Ask them to amend anything that’s wrong. 

Get on the electoral register Loan providers tend to use this to confirm your identity and your address, so registering to vote can help your application.

Use our eligibility calculator When you apply for a bad credit loan or other credit, lenders carry out a hard credit search, which leaves a ‘footprint’ on your credit file. If you’re rejected, this will be visible to other lenders and they could be less likely to approve any application you make. Use our eligibility checker and you can find out which loans you might be eligible for without any impact on your credit score.

Try to stay 25% below your credit limit Loan and credit providers will check how much credit you still have available. If you’re constantly at the limit of your overdraft or credit card, they may be put off lending to you as it could be a sign that money is tight.

Consider closing any credit cards you don’t use If you have access to large amounts of unused credit, potential lenders may be wary as there’s a chance you’ll use it all at once and be unable to pay it back. However, closing unused cards can negatively impact your credit score as it could affect your credit utilisation ratio – the percentage of the credit available to you that you’re using.

Read more about the pros and cons of cancelling credit cards.

Repay on time Make sure you consistently meet any monthly repayments and stay within your credit limit. Set up direct debits so you don’t miss any payments.

Applying for a loan will, in most cases, leave a hard search on your credit file, which can have a negative impact on your credit score. But it’s very easy to see which loans you could be eligible for without affecting your score. Doing this can help you see what amounts and rates of interest you could get for loans you’re likely to be accepted for, based on your credit history.

See what bad credit loans you might be eligible for now

A soft search is a way of looking for loans or credit cards without affecting your credit score. Traditional credit checks (or hard credit checks) will leave a mark on your credit file, which potential lenders can see when you apply for a loan. If you’ve applied for credit lots of times, other lenders can see this and may be put off lending to you. 
 
Soft searches will still appear on your credit file but lenders won’t be able to see them, so it won’t impact their decision to approve or reject any applications you make.

Use our eligibility checker to see which bad credit loans you could be eligible for. Once you’ve decided to apply for a loan, you’ll need to provide:

• All the addresses you’ve lived at for the past three years
• Your email address
• Your employer’s details, including their address and phone number
• Details of your monthly income and outgoings
• Your bank or building society account details
• Information about any CCJs or bankruptcy

Missed or late payments can harm your credit score and you could face late payment charges.  To avoid this, you can set up automatic payments from your bank account. Your loan repayments could be set up as a:

• Direct debit – your lender takes money from your account each month on an agreed date.
• Standing order – you pay a fixed amount from your bank account each month, which you can change or cancel at any time.
• Continuous payment authority (CPA) – you give the lender permission to choose when and how much money to take from your account each month.

If you miss a loan repayment, you’ll likely be charged a fee. It could also damage your credit score. Ideally, you should contact your lender as soon as possible to discuss your options – for example, a manageable repayment plan.

If you’re worried about debt, The Money Advice Service has information on where to get free debt advice.

• Credit-building credit cards allow you to build up your credit history by borrowing a small amount of money, between £100 and £1,000.
• An arranged overdraft could be helpful during a short-term cash crisis. Just be aware that interest rates can be as much as 40%.
• Payday loans can be expensive and penalty fees harsh, so avoid them if you can. The Money Advice Service offers helpful advice on alternatives to payday loans.