What is a bad credit loan?
A bad credit loan is a type of loan available to those with bad credit or poor credit history. If you fall into either of these camps, you may be unable to get a loan from traditional sources such as a bank or building society.
More often than not, these types of loans have higher interest rates than normal, because the person borrowing is seen as a high-risk to the lender.
What can I use a bad credit loan for?
A bad credit loan can be used for many reasons, although it tends to be for things that need immediate attention. For example, your washing machine needs repairing, or your car breaks down. If it’s an emergency or necessary purchase and you do not have the funds or cannot raise them quickly enough, then it’s likely a loan will be your first option.
This type of loan will potentially allow you to build up your credit score, should you make repayments regularly and on time. The only way to prove that you are a responsible borrower is to borrow.
However, be aware that the lender will ask what you are using the money for and this could affect your ability to get the loan, so make sure it’s a worthwhile reason. As these loans come with a much higher interest rate it is best to be honest with yourself as to whether this is an essential form of borrowing for you.
Where can I get a bad credit loan?
Money Guru’s moneymatcher is a great way to find out and compare the different lenders that may be willing to offer you a loan. We only work with reputable lenders, so you can start your search with confidence. Simply choose the loan amount and loan term and then to personalise the selection even further, use the filters to add a few details about your personal circumstances. This will ensure you receive the most suitable options for you to take a further look at.
Research is essential, so whichever loans look the most appealing, will still need to be looked over. Read the terms and conditions carefully and make sure you understand all the elements of the agreement before you apply.
Alternatives to bad credit loans
There are alternatives to bad credit loans, so if a bad credit loan doesn't sound like the right option for you, don’t worry. There are other options available.
Consider what you need the loan for as certain types of credit could fit some situations better than others. It’s also worth noting that any credit that you can pay back on time and in full will have a positive impact on your credit score. Starting small, with a lower amount might be an option, so that you can prove you’re a responsible lender without taking out a huge sum. It could also build your confidence at managing a loan well.
Lenders will always look at a range of different things however, in order to assess your ability to pay back a loan. This includes your income, expenditure and credit history, so if you do need a larger sum, you won’t be granted it unless the lender is confident you have the means to pay it back.
Read on for Money Guru's advice on the other ways to get credit and build up your credit score.
Credit building credit cards
Credit building credit cards are available to those with a poor credit history, or little to no history. They offer access to credit and the opportunity to build a higher credit score.
Much like other forms of credit for those with a poor credit score, they do come with higher interest rates than usual. However, if you were to borrow and pay off within a month you could avoid these high-interest fees.
A popular way to build a higher credit score would be to put a small amount onto a credit card and pay it off each month. This shows you are able to manage your money and can be trusted with credit.
Another downside can be the relatively low credit limit. These credit cards may not be the answer to bigger, unexpected costs such as expensive house repairs. However, as a solution to smaller lending, they can be a great option.
A credit union is a member-owned organisation designed to help its members. It is run as a cooperative and often uses the principle of people helping people. Credit unions can offer loans with competitive interest rates, as well as other financial services.
Credit unions can vary greatly in different regions, so it is best to do your research. Most operate on a not-for-profit basis and are there to help those who wouldn’t otherwise be able to access loans and other financial services.
This not-for-profit status is different to the no-profit label of a charity. They still run off the money made from interest rates and fees, but do not charge excessive interest to make a huge profit from borrowers.
Budgeting loans are a government-provided loan available for very specific purposes. These types of loans help you to buy new furniture, clothes or to help with rent advances etc. That said, they are only available to people on specific benefits.
These loans are a good option for those who need money quickly and although only a limited amount is available, they are repaid by a small deduction to your benefits. They can be paid back over two years and if you were to get a job which stopped your benefit payments, you would simply arrange an alternative means to pay back the money owed.
A big positive to this type of loan is that it is interest-free and you will therefore only pay back the money borrowed.
For more information on this type of loan, get in touch with your local Job Centre Plus.
To find loans suited to your circumstances, quickly and more easily, head to our moneymatcher.