How to find a bad credit personal loan
A poor credit record doesn't necessarily mean you don't have options. Many people assume that because they have been refused credit, or have a poor score, that they can't access financial products. This isn't always true. There is a range of options and lenders out there. One such option is a 'bad credit' loan. These are specifically designed for those who may have difficulties obtaining mainstream lines of credit.
In this article, we'll look at some of the considerations you need to make in relation to a bad credit loan. We also examine some of the best lenders on the market for this kind of product.
What is a bad credit loan?
A bad credit loan is a loan that is designed for those with a poor credit rating. Many lenders do not offer these kinds of loans, and those that do will charge a premium on the APR rate. If you have a limited credit record or a poor credit score, you are considered to be a high-risk borrower. However, some companies will mitigate this risk by offering loans with high interest rates.
Taking out a bad credit loan can help you increase your credit rating, provided you make your repayments on time and pay off the debt in full.
A few different types of loan are available
Guarantor loan. This is where someone else co-signs the agreement. They will be responsible for repaying the loan should you be unable to. Usually, they're a close friend or relative with a good credit score.
Unsecured personal loan. These are financial products that allow you to borrow money without having to put up anything as collateral, for example, equity in your house.
Secured personal loan. Lenders will sometimes require you to secure the loan with an asset of high value. A house or car could be used in order to provide assurance to the lender.
Payday loan for people with bad credit. A short term solution for urgent needs, a payday loan could be a solution if you need to coner immediate expenses and have bad credit.
Am I eligible for a bad credit loan?
The requirements for a loan depend a great deal on the individual lender. However, as a minimum, you will likely need to be over 18 years old and a permanent resident of the UK. Aside from this, lenders will look at your circumstances and credit history before making a decision.
However, there are some things you can do to improve your chances of being accepted
Don't submit multiple applications at once. Lenders can see when you've made previous applications. Having too many can put off companies.
Check your credit score. To fully understand your financial situation, it's a good idea to check your credit rating. This allows you to apply for the right products and have a better chance of being successful.
Each lender will have their own requirements, so you should check these before applying too. There are many services that offer a soft search function, which give an indication of how likely you are to be approved without flagging the search on your credit file.
Advantages and disadvantages of a bad credit loan
As with any financial service, there exist some pros and cons of using a bad credit loan:
They allow you to borrow even when mainstream lenders won't accept you.
It gives you a chance to build your credit status while accessing money
They're often expensive. APR rates are a lot higher than with standard personal loans.
You may need to secure it with an asset or guarantor, which can be difficult for some.
There are some alternative methods you could use to get money. We've outlined some ideas, below:
Peer-to-peer loan. Some lending sites allow you to borrow directly from other users. The amount and interest rate tends to vary greatly.
Payday loan. These are short-term loans that can be used in an emergency. They usually have high APR rates and should not be used as a long-term solution.
A credit union loan. Community-run co-operatives will sometimes provide loans for those with a poor credit rating.
Budgeting loan. These are government-run schemes that are available to certain people who are on benefits.
Where to get a bad credit loan
Below, we've highlighted some of the institutions that offer loans to people with poor credit ratings. We've covered some of the features that make them attractive to borrowers:
UK Credit provides people with a bad credit rating the chance to secure a guarantor loan. They have some fairly competitive rates and offer flexibility with amount and repayment time:
Loans are available from £1000 up to £10,000 with a fixed APR of 39.9% representative.
Repayments can be made over 1-5 years.
Tenant guarantor loans are available up to £6000. For greater than this limit, the guarantor must be a homeowner.
Quick application and highly-related lender.
If you're a homeowner and have a poor credit rating, you may be eligible for a personal loan from 1st Stop. There are some stipulations, but also some attractive rates:
Borrow between £2000 and £15000 with a representative APR of 24.9% (variable). This one of the lowest we've seen.
The loan is taken out over the course of 2-6 years.
You must be a homeowner in order to apply, as well as a UK resident over the age of 21 in full-term employment. You cannot be bankrupt of under a debt management arrangement.
Applications take a short amount of time, and a decision is made within minutes.
Amigo is a popular UK lender that specialises in loans for those in difficult situations. If you're finding it difficult to get credit with a mainstream bank, Amigo could be the answer:
Take out a loan from £500 up to £10,000 with a variable APR of 49.9%.
Money can be paid back over the course of 1-5 years.
Amigo specialises in loans for those who are self-employed or have a poor credit rating. You will need a guarantor to co-sign the loan agreement.
Another company specialising in loans for homeowners who don't want to secure a loan against their property is Progressive Money. Providing you own your own house, there are some appealing benefits:
Loan between £1000 and £15,000 at a low rate of 31.77% representative APR.
The money can be borrowed over a period of 18 months to 5 years.
If you don't own a property, you can still apply for a bad credit loan, but there is a representative 93.6% APR.
Suco offers a relatively low APR compared to other lenders on their guarantor loans. However, they must be taken out over a long time:
Loan from £1000 to £15,000 to get a representative APR of 39.9%.
Repayments are made over the course of 4-5 years.
To be eligible for a loan, your guarantor must be a homeowner and aged between 18 and 78.