Bad credit loans

A poor credit history doesn’t mean you can’t access loans and credit cards. If you’re having any problems getting approved for credit, here’s what you need to know about bad credit loans.

Why can’t I get approved for a loan?

Bad credit is a phrase used to describe having a poor or low credit score. When applying for a loan or credit, lenders will check your credit score to decide whether you’re a suitable and reliable borrower. Having a bad credit score can be one of the main reasons you’re not eligible for a loan. Many lenders now have automated systems that score your application and your credit history. If you fall below a set figure that they feel comfortable with to make a loan, they’ll automatically reject your application.

Bad credit loans are designed for people who have struggled to get a loan previously. If you manage to keep up with your repayments, you could improve your credit score and be approved for other types of loans in future.

Why do I have a bad credit score?

Your credit score will be affected if you’ve:

  • Failed to stick to a credit agreement
  • Made late repayments or missed repayments
  • Been declared bankrupt
  • Have a County Court Judgment (CCJ) against you
  • Entered into an Individual Voluntary Arrangement (IVA)
  • Never borrowed money before.

Whether you have bad credit, or little or no credit history, you can do something about it. See how to build your credit score.

If you don’t have a perfect credit score and you need to borrow money, there are still options available to you. For example, bad credit loans. A poor credit score doesn’t mean you can’t get a loan – it just means you’ll probably have fewer lenders to choose from.

Each of the three main UK CRAs - Experian, TransUnion and Equifax - have a different score for what they consider bad credit:

  • Experian: 720 or below (out of 999)
  • Equifax: 579 or below (out of 850)
  • TransUnion: 565 or below (out of 710)

Accurate as of September 2022.

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[1] Correct as of September, 2022.

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Borrowing limits and interest rates for bad credit loans

Interest rates for bad credit loans tend to be higher than average rates for other loans. This is because you’re considered to be a higher risk. To get an idea of the loan rates to expect, here’s a representative example:

  • Loan amount: £2,000
  • Representative APR (Annual Percentage Rate): 59.9%
  • Loan term: three years (36 months)
  • Monthly repayment amount: £120.74
  • Total amount repaid: £4,346.62
  • Credit available subject to status

This is just a representative example. To find a loan that’s right for you, start by comparing bad credit loans with us.

The amount you can borrow with a bad credit loan will vary among lenders and the risk you present. Some lenders may have rules about how much they’re willing to lend over particular time periods too. For example, you might be able to borrow £2,000 over one or three years, but not over 10 years.

If you have a particular sum that you need to borrow, use our eligibility checker to see what loans you could be eligible for. It’s a soft search and won’t impact your credit score.

See how much you could borrow

What are the pros and cons of bad credit loans?

There are pros and cons of bad credit loans, so consider carefully whether this is the right form of borrowing for you:

The pros of bad credit loans 

  • You’re more likely to be accepted.
  • The application process can be quicker than a normal loan if you have bad credit.
  • If you make your payments in full and on time, a bad credit loan can help build your credit score.

The cons of bad credit loans

  • Interest rates can be high as you’re seen as a higher risk.
  • If you secure your loan against an asset, like your car or house, it could be repossessed if you can’t keep up with the repayments.
  • Some lenders have minimum lending amounts and minimum time periods.
  • Lenders could charge a fee if you make late payments or have payments returned.

What should I consider before I apply for a bad credit loan?

Here are the most important things to consider to help you find the best loan for you:

  • The amount you’re borrowing – borrowing a larger amount can sometimes be rewarded with lower interest rates, but you need to be sure that you’ll be able to meet your repayments. And the more you borrow, the more you’ll need to pay back… with interest.
  • The period you’re borrowing over – this is known as the term. Borrowing over a longer period will normally lower your monthly repayments. But don’t just go for the maximum term length, as you’ll end up paying more overall with the interest added.
  • The interest rate – lower interest rates are often reserved for longer terms or higher borrowing amounts, but it’s good to compare rates from different providers. Our comparison service allows you to compare loan rates quickly and easily.
  • Your monthly repayment amount – the amount you’re borrowing, the term and the interest rate combine to determine the amount you’ll be expected to repay each month. How much you can afford will be unique to your own financial situation, so it’s important to find the best loan for you. The last thing you want is to miss or make a late repayment, and potentially damage your credit score further.

Use our loan calculator to get a better idea of the cost of borrowing and what you can afford, before submitting your loan application.

Frequently asked questions

What types of loans can I get with bad credit?

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).

How do I qualify for a bad credit loan?

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.

What happens if I get refused a bad credit loan?

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.

Why have I been rejected for a loan in the past?

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.

How can I improve my chances of getting credit?

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. You can get your Experian Credit Score from us, for free, in the Meerkat app. Find out more about our free credit check.

Get on the electoral register to 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.

Can I apply for a loan without affecting my credit score?

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

What is a soft search?

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.

What do I need to apply for a bad credit loan?

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

How to manage your loan repayments

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.

What are the alternatives to taking out a bad credit loan?

  • 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.

Compare bad credit loans

If you need a loan, but have a less than glowing credit report, we can help. If you compare loans with us, we’ll only show you those that you’re likely to be accepted for - without affecting your credit score.

  • Tell us how much you want to borrow and for how long.
  • We’ll show you a list of options to choose from.
  • You can adjust the loan amount or the length of the loan to see how this will affect monthly payments and overall costs.
  • You can sort your results by chance of approval if you apply (eligibility) and the interest rate (APR), so you can see which have the lowest rates.
  • Check out the details of the loan – for example, if you can pay it off early or make overpayments.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

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Author image Alex Hasty

What our expert says...

“Provided you can make the repayments, taking out a loan when you have bad credit can be useful and can even help repair or improve your credit score. But you need to make absolutely sure that the loan is affordable – and that you’re getting the right deal for you.”

- Alex Hasty, Finances expert