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How to manage your bad credit loan

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Are you thinking of getting a bad credit loan? As much as you might need an emergency injection of cash, the last thing you need is for your credit score to get worse through borrowing. Effective loan management is vital to make sure you don’t damage your credit score any further.

It’s important for your financial future to avoid any additional penalties or charges that could further harm your credit score. To help out, we’ve put together a short guide on how to manage your bad credit loan. Just think of the Guru as a world-class goalkeeper; saving you from unnecessary penalties and wearing an over-the-top purple kit.

Tips to manage your bad credit loan

The main thing about getting a bad credit loan is playing it safe and not putting yourself in a position where you would struggle to make repayments.

If you don’t have enough to spare each month to meet repayments, you can quickly find yourself racking up penalty charges that can hike up the amount you plan on repaying. But with a bit of forward planning and tracking your loan repayments, you should be able to keep on top of it.

Below we’ve put together a few rules to stick to when choosing and managing a bad credit loan:

  • Always check your eligibility before applying
  • Never borrow more than needed
  • Make a note of each repayment date
  • Try to arrange the loan earlier in the month, or closely after you would usually get paid to avoid missing a repayment
  • Check your bank account balance frequently to avoid overspending
  • If possible, plan to pay off your loan early

Following these brief rules will really help when it comes to getting your loan repaid on time and in full. We’ve gone into a bit more depth below, to help you even further with sensible borrowing.

Meeting your loan repayments

Before you hit that ‘apply’ button you should always take stock of your current income and make sure you can definitely afford the repayments. Going ahead without considering your repayments is a great way to get you into further debt and damage your credit score, which is not advisable in the slightest.

Instead, start budgeting your month in advance so you know exactly when the best time to make your payment is, as well as ensuring there is more than enough in your account to cover each month.

How are payments taken?

Repayments are usually taken by direct debit out of a nominated current account every month. You should be able to change the date of your repayments, but this will be down to the individual lender’s discretion.

As mentioned, it’s probably a good idea to move the repayment date so it’s closer to your payday. This will give you a better chance of having enough in your account to meet the repayments, rather than accidentally overspending, making it difficult to afford the payment.

Set up payment reminders

A great way to ensure you don’t miss a payment is to set up payment reminders. Make sure it is at least 24 hours before the payment is due to come out, so you can check your balance and ensure there is enough in your account.

The most direct way of doing this is to set a calendar reminder on your smartphone or computer, but make sure that you will definitely see it! A simple reminder will be enough to jog your memory in case you’ve had a busy month, and therefore stay on track to repay the loan.

Can I take a break from repayments?

Payment holidays are at the discretion of your lender, but aren’t usually offered in the case of bad credit loans. You’re more likely to qualify for a payment holiday in the case of a mortgage, particularly if you have managed to overpay by a certain amount, and you have proven yourself to be a reliable borrower.

But since you already have a bad credit rating, it’s unlikely you’d be allowed to take a break, which is why meeting monthly repayments is so important.

Can I make early repayments on a bad credit loan?

Many lenders will provide the option of an early repayment, depending on the specific terms of the loan offer. A fixed annual rate also means that your total repayment has already been calculated, so as long as you repay the entire amount, an early repayment should be acceptable.

With that being said, it is completely up to your specific lender as to whether you are allowed to make early repayments. Since the terms of your loan sign you up to a certain payment schedule, chances are you will have to keep making payments, even if you have overpaid. It will just mean your later payments are reduced, which can still be a benefit down the line.

What if I can’t pay my loan back?

If you get into financial trouble when trying to repay your loan, it can be difficult to get back on track, especially if you’re being charged extra penalties that might increase the overall amount you are due to repay.

Consider taking the following steps if you find yourself unable to make a payment:

  • Contact your lender – as soon as you realise that you might not be able to pay the next instalment of your loan, get in touch with your lender. If it’s just a one-off issue and you’ve already repaid a portion of your bad credit loan, you might find they’re happy to give you an extra month to catch up
  • Organise your finances – if you find your balance low in one particular month, it’s time to look at your accounts to see where that extra cash has gone. You might find that whatever has gone wrong in one month can be easily fixed the next month
  • Get financial advice – if there is more than one month where you’re struggling to make a payment, you might want to seek out financial advice to get back on track. Citizen’s Advice is usually the go-to place to get started. After that you might have a local financial advisor you can get in touch with to help you handle your repayments.

If you get into financial trouble when trying to repay your loan, it can be difficult to get back on track, especially if you’re being charged extra penalties that might increase the overall amount you are due to repay.

Aim to improve your bad credit score

If you now have a better idea on how to pay off a bad credit loan, you should also take steps to improve your credit score too. Thankfully, just by paying off your loan you can make slight improvements to your credit score, proving yourself to be a reliable borrower.

Other things you can do to improve your credit score include:

  • Take out a credit builder credit card – simply by spending on the card and paying off the amount every month, you can build up your credit score
  • Join the electoral register – as a registered voter you are indicating you have a permanent address and are therefore seen as more trustworthy
  • Use a basic current account – these current accounts have less opportunities to incur debt, and therefore will help if you’re prone to overspending

Having a better credit score allows you to have a wider access to financial products with better interest rates and terms attached. This is especially important if you’re planning to take out a bigger loan or even a mortgage in the future. Read more about your credit score using the articles below:

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Now that we’ve given you a few tips to efficiently manage your loan repayments, why not start your search? Our free moneymatcher comparison tool can help you find the best bad credit loan for you, all without affecting your credit score.

Robert Bester - Content Writer

Updated on 20th June 2019