What are bad credit loans?
Bad credit loans are for people with a credit report that is less than perfect or who have little or no credit history. These loans usually have higher interest rates and more restrictions than other loans, as this helps lenders to reduce the risk that you will not repay them. However, they can be useful if managed responsibly.
Importantly, you won’t find companies advertising “Loans with bad credit history” – that’s just a common, unofficial name for them.
How can I get a loan for “bad” credit?
First, work out what you can afford to pay back each month. Then compare loans with different companies to find the one that best suits your financial capacity and needs.
Try to apply only for loans you are likely to get, as each application will put a stringent search in your report, which may lower your score. It may be useful to check your eligibility before applying to understand your options for approval. You can see your suitability rating for personal loans by comparing them with Experian – it’s free and it won’t affect your credit rating.
Just remember that we are a credit broker, not a lender †. This means that we do not provide credit, but we can make your search easier by helping you compare offers in one place.
What is “bad credit” and do I have it?
If you have “bad credit”, it means that companies have a negative view of your credit history, so you may find it difficult to borrow money or access certain services. But remember that each company has different criteria when assessing your credit history – some may see you more positively than others.
You can get an idea of how companies see you by checking your free Experian credit score.
If your score is low, it may be because you have a negative impact on your credit report, for example:
- Late payments
- Defaults
- District court judgments
- IVA, DMP or DRO
- Bankruptcy
Too many hard searches (e.g. they are recorded when you apply for credit)
It could also be that you simply don’t have a great credit history for lenders to make a decision.
This is a common problem where:
- Are you a young adult and haven’t had time to build up a credit record
- You have never taken out a loan or opened a bank account
- You have recently moved to the UK because credit history cannot be transferred across borders
How can I get better rates and higher limits?
You might consider a higher risk loan
If you don’t want to pay high rates or need a large amount, you may still be able to find a loan that suits your needs, even if you have bad credit. But usually the trade-off is that you will have to accept a higher level of risk. For example:
- Guarantor loans – where someone (usually a relative) promises to make your repayments if you can’t. Finding a guarantor with a good credit history can help you get a loan with better rates or a higher limit. But being a guarantor means potentially losing your assets, like your house, if you struggle to keep up with payments.
- Secured loans – where you use your house, car or other asset as collateral, this means you could lose it if you fall behind on repayments. However, collateral reduces the lender’s risk, so they may offer you better rates or higher limits than you would otherwise get.
Try improving your credit rating
Your credit rating is not set in stone – it is determined by your financial behaviour, so you have the right to influence it. You can take a number of steps to improve your score and increase your chances of getting the loan you want.
You can check your Experian credit score for free and it will be updated every 30 days when you log in. And don’t worry – the result will not be affected.
Loan repayment management
A “bad credit loan” may have high interest rates and low limits, but it can be an opportunity to improve your credit history by showing that you are a reliable borrower. Sticking to a repayment schedule over time should start to boost your credit rating, helping you to get better credit offers in the future.
Here are three key tips when you have a loan:
- Set a monthly budget and stick to it so you never miss a loan repayment
- Try not to add to your debt by paying off the loan, as this can damage your score and put pressure on your ability to make repayments
- If you are worried that you may not be able to make a payment, speak to the lender as soon as possible to discuss your options