How to get a loan with bad credit

When you’re trying to get a loan, a poor credit score can have a massive impact on your application and make it harder for you to borrow the money you need. You may have a bad credit score because you’ve borrowed money in the past and not kept up with repayments, missed a credit card bill, or perhaps even because you’ve never borrowed money at all. There are many things you can do to improve your credit score, from paying off existing debt to displaying a consistent track record of paying off bills, but it can be a long process.

While loan applications are similar across the board, the process and the type of loans available can vary depending on your credit score. So, what are the best loans for bad credit?

What type of loan can I get with bad credit?

Your credit rating can affect both the type of loan and the amount of money you’re able to borrow. There are greater restrictions and interest rates are also generally higher on these ‘bad credit loans’ purely because lenders see you as a ‘bigger risk’ than those with positive credit scores, but there are still plenty of options for you to choose from.

Loans with no credit check

Many companies offer loans with ‘no credit check’, but what does that mean? Well, in one sense this is slightly misleading, all UK lenders are required to assess your financial suitability for a loan. So, they might look at other aspects of your financial situation such as your job, wage, and the assets that you own, such as a house or car. This process protects consumers and loan companies alike and ensures both parties can keep to their part of the agreement.

The difference between these ‘no credit check’ loans and typical personal loans is that a personal loan lender will almost always perform a hard’ credit check on you when you apply for a loan, making it very hard for those with poor credit scores to be approved. Unfortunately, these hard credit checks can also have a negative effect on your credit score if they lead to a failed loan application. You can, however, check your own credit score using a ‘soft check’, which does not affect your credit rating. Take advantage of free services such as our own free credit report and always check before you apply if you’ve had financial issues in the past.

A ‘no credit check’ loan may mean you have a better chance of a successful application, but you should still be sure you’re able to keep up with the demands of your contract, especially if you’ve had trouble keeping up with repayments in the past.

Secured vs. Unsecured

One option that can make applying for a loan with bad credit easier is a secured loan. These loans use your assets as collateral to guarantee payment if you are unable to keep up with repayments. This is a good option if, for example, you’re a homeowner or own substantial personal assets such as cars, electronics or jewellery, but also have poor credit history. You are generally able to borrow larger sums of money with this type of loan, depending on what you offer as collateral and they are often offered at more reduced rates than typical personal loans because they present less risk for the lender.

However, you should always take into the account the repercussions of failing to make repayments. If you secure your loan against a car or your home, then missing repayments could mean you lose them, so always be sure you can commit to your repayment schedule.

Guarantor vs. No guarantor

Another option, similar to a secured loan, uses a guarantor instead of actual tangible assets to guarantee your payment. In other words, this guarantor promises to pay your debts on demand if you are unable to. Like secured loans, a guarantor loan may enable you to borrow more money than on a personal loan because of the added level of security. Essentially, your suitability for this type of loan is judged by your guarantor, so they must be at least 21 years old and have good credit history in order to meet most lenders’ requirements. This could be anyone from a partner to a friend, to a family member as long as they’re willing and able to fulfil your payments in the event that you can’t. It is important that the guarantor seeks independent legal advice before entering into a guarantee document.

Short-term vs. Long-term

A short-term loan is generally defined as one that is scheduled to be paid off in less than a year. These loans are a good alternative if you have bad credit. Unlike long-term loans for home improvement, student fees or mortgages, which are credit based, short-term loans are more generally means tested based on things like your salary. A good example of a short- term loan is a ‘payday loan.’ These are an option if you need money fast, because you can generally get approval and be paid within a few days. However, they also have much higher interest rates than longer-term loans, so make sure you’re able to keep up with potentially large repayments inflated by interest, on a monthly basis.

Bad credit business loans

As well as affecting personal loan applications, bad credit can also have an impact on your business. You may be applying for a start-up business loan for a new venture or to supplement a current business. While a lender will always look favorably on a good credit score, it doesn’t mean you’re excluded because of a bad one. Lenders may overlook poor credit history as part of a loan application if you can prove your business is performing well financially, or if you have incoming invoices that can prove you have money coming in and will be able to keep up with repayments.

What type of loan can I get with bad credit?

Just as with a typical or business loan, there are many places to find a bad credit loan. The traditional path would be a bank loan, but more typically for bad credit loans, you might use a direct lender. Direct lenders are organisations, other than banking institutions, that loan money to individuals or companies. Thankfully, if you want to get a better picture of what’s out there, you can use a loan comparison tool and filter by ‘bad credit loans’ so you can get straight to the deals relevant to you.

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