Comparing bad credit loans
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
30th November 2020
5 minute read
Have you been thinking about taking out a bad credit loan online? The good news is that there are loads of options to choose from when borrowing money, even if you do have a poor credit score.
The amount you can borrow is usually based on the type of loan you choose but can be adapted to suit your needs. A short-term loan, for example, will allow you to borrow a small amount for a short time, whereas a secured loan will allow you to borrow a large amount for a long time.
We’ve put together a short but helpful guide if you’re looking to navigate the murky waters of bad credit loans. We will cover the basics, including how to apply and how to compare different loans to find out how much you can borrow.
What are bad credit loans?
Bad credit loans are personal loans designed for those who have a bad credit score. This usually comes about from issues with borrowing you may have had before, with the most common being failure to repay a loan or credit card.
Whilst you can search for personal loans for those with bad credit, you won’t normally find a type called ‘bad credit loans’. Instead, you will find certain loan types that fall into that category:
- Guarantor loan – a personal loan where you get a friend or family member to take responsibility for the loan if you fail to repay it. This still requires your nominated ‘guarantor’ to have a good credit rating themselves and might even need them to be a homeowner too
- No guarantor loan – this is just a standard personal loan, but with terms more appropriate for a customer with a poor credit score
- Short-term loan – these are taken over a very short time but with a very high interest rate, meaning they need to be paid back within the agreed term or you will be facing expensive fees and further repayments
- Secured loan – this is a personal loan that is secured against an existing asset you already own, such as a house or a car. Since you’re using an asset as collateral, you will find that lenders will be more likely to accept your bad credit score
You can find out if you have bad credit by checking your credit report. This will give you a breakdown of your current financial commitments, along with information regarding any previous borrowing you’ve undertaken. Your credit score will show you whether you are deemed to be a trustworthy borrower or not.
If past issues have meant you now have a poor credit score, this can reduce your access to borrowing money. The first thing you should consider is how to improve your credit score for the future, allowing you to gain access to credit cards, personal loans, an overdraft and even a mortgage if you require. The only issue here is that it will take time to improve your score and is not usually something you can change very quickly.
If you need to borrow money now and can’t wait to improve your score, chances are you will be thinking about applying for a bad credit loan. Read on to find out how you can apply.
How do you get a loan with bad credit?
As we’ve discovered, having bad credit doesn’t necessarily make you ineligible for financial products. In fact, there are plenty of options for those with a poor credit score to pick from, meaning that you don’t always need to wait for your credit score to improve before you can borrow money.
However, getting a loan with bad credit does mean the following:
- You will have limited access to financial products
- You are more likely to be rejected by a lender
- You won’t have access to low interest rates
- You will usually have a larger overall amount to pay back
Comparing bad credit loans with standard personal loans will allow you to see the difference between both financial products and the advantage of having a low interest rate, over a high one. It will also give you all the information before you make the decision to apply for a bad credit loan or not.
Applying for a bad credit loan
Getting a bad credit loan is relatively straightforward, though you should always complete two actions before hitting that ‘apply’ button:
Both actions will allow you to check up on your current financial status and see how you appear to potential lenders. This will then confirm whether you’re eligible to apply. It might be that you’ve previously had issues with repaying borrowed funds, giving you a bad credit score, but this will not make you ineligible to apply.
On the other hand, if you still have outstanding amounts owed to a lender and have been given a CCJ, this can stop you accessing any further financial products until this has been settled. A CCJ will stay on your credit file for up to six years, so will still be visible to lenders, but if you’ve managed your finances in the meantime, you may find that your score will have improved.
Can I get a bad credit loan with no credit check?
No. With any financial product you will usually have your credit file checked, though it’s easier to think about it as a soft or hard search of your file.
- Soft search – this will usually be performed as part of an eligibility check (such as moneymatcher) and is simply a lender checking that you meet certain criteria. It will not affect your credit score
- Hard search – when you apply for a loan or other financial product you will usually receive a full check to find out whether you are ‘creditworthy’. If you are rejected for credit due to an issue on your credit file (such as a CCJ) this can negatively affect your credit score
How do I compare bad credit loans?
Browsing through, you’ll start to get an idea of the type of loans on offer and which one might be the best for your circumstances. This can narrow down your search dramatically, but remember to ask yourself the following questions to be sure:
- How much can I borrow? – many lenders will show you a representative example to give you an idea of how much you could borrow, but you should already have a clear idea of how much you need
- What is the interest rate? – this will dictate how much you will have to pay back on top of the original amount and is usually depicted as an Annual Percentage Rate (APR). The APR on a bad credit loan can be high, so always check the representative example for an indication of what your repayments could look like
- How long do I want to borrow for? – this might be less clear at first, but having a short amount of time to repay your loan will make it cheaper overall, as you have less time to accumulate interest
These questions should help you find the best bad credit loan for you, allowing you to comfortably repay the borrowed funds during the agreed loan term. Use the button below to start your search today.