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Rebuilding a bad credit score can feel like a mammoth task, but it certainly isn't impossible. To get a loan with a bad credit rating, you just have to be financially savvy to find the right loan for you. Once you have done this, you can begin to rebuild your credit score.

Luckily, Money Guru is here to give you all the information you need on the types of loans available when you have a poor credit score.

Read on to discover your options and choose the right type of loan for you.

What loan can I get if I have bad credit?

The loans you can get when you have bad credit are usually limited, but they are still out there. If you have a poor credit score or little borrowing history, it can be more difficult to get a loan, as you’re seen as a high-risk borrower. Your credit score is one of many factors a lender can access when deciding whether to lend you money or not. Income over expenditure and affordability are also taken into account.

Here are some of the different types of loan that could still be an option, even if you have bad credit.


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Secured loans

When taking out a secured loan, you will be asked to pledge an asset as collateral. This is to assure the lender that you will pay back the loan and that if you are unable, you have a backup means to pay.

Collateral could include your home or car. If you were unable to make the loan repayments, then the lender would have the right to repossess that asset and sell it to reclaim back the money owed.

This may sound like a scary option, but as long as you are certain you will be able to make the repayments it can be a good way to get a loan and begin to rebuild a poor credit score.

Another big positive to this type of loan is that they generally have a lower interest rate than an unsecured loan.

Unsecured loans

Unsecured loans are the opposite of a secured loan. This means the lender deals solely with the borrower, rather than having to secure collateral against the loan amount.

The way that a lender decides whether to give someone an unsecured loan is dependent on many factors. These include things like your credit score and affordability. If you have a less than perfect credit history this will be a more difficult loan for you to get.

These types of loans are useful for big purchases, such as home improvements and emergencies, but this may not be a feasible option if you have bad credit.

However, there are types of unsecured loan which may still be available to you.

Guarantor loans

This is a type of secured or unsecured loan which is a great way to build credit. When applying for the loan, a second party will agree to make repayments if the borrower defaults.

Often this is a popular way to begin to build a credit score. Guarantors might be parents of young adult children, helping them to get their first loan. They could also be a friend, work colleague or mentor.

A downside to this type of loan is that they can sometimes have higher interest rates, but this differs between lenders so always check before you apply. The trust between borrower and guarantor must also be strong, as the guarantor is being asked to take on the debt of another person, should they not be able to make repayments.

On the plus side, they have become more popular – and therefore more accessible – since the 2008 economic downturn. These loans are a much-needed option for the many people in the UK who would not otherwise be able to access a bank loan because of a poor, or non-existent, credit history.

Peer to peer loans

Peer to peer loans, also known as social lending or crowd lending are an alternative to traditional borrowing from a bank or building society. It involves lending between individuals instead. A big plus for this type of borrowing is that the organisations offering them often have lower overheads and therefore may be able to offer smaller interest rates.

Peer to peer loans as a business started in the UK in 2005 with Zopa being one of the first lenders to offer this type of borrowing. Since then the trend has grown and this type of loan has become normalised.

Just like with other forms of debt, missing payments could negatively impact your credit score.

Loan fees

It is always important to be aware of any additional fees within your loan agreement, so read the terms and conditions carefully. Things to look out for are arrangement fees, late payment fees and early settlement fees. Lenders subscribe to a clear, fair and not misleading policy, so these details won’t be hidden away. You just need to make sure you fully understand what you’re signing up for.

Loan fraud

A very common form of loan fraud in the UK is when a borrower is asked to pay a fee upfront upon borrowing money. A reputable lender will never ask this of you. Here are the warning signs to look out for.

The warning signs of loan fee fraud

  • You’ve made one or more applications online, and within a short time frame, are contacted either by text, email or phone call and offered a loan.
  • You will be asked to make an upfront payment, or a non-traditional payment method, such as iTunes vouchers or transfer into an unknown bank account.
  • Scammers will often explain away the fee by saying it is refundable, an administrative cost, insurance or a penalty because of poor credit history.
  • Scammers will try to put pressure on you to pay. They may tell you that the offer is time sensitive and urge you not to miss the opportunity.
  • They may contact you again after the initial payment, requiring further payments so that the loan can be released.

Protecting yourself against loan fraud

Only deal with FCA authorised firms.

You can check the Financial Services Register to see whether a firm is regulated by the FCA. If they give you a direct email or number to contact, don’t use it. Only use contact details that are on the Financial Services Register. If in doubt, contact the FCA helpline on 0800 111 6768.

Try our moneymatcher, which searches through reputable lenders, with your circumstances mind. This makes the process of finding your ideal loan just that little bit easier.


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