Loans for ‘bad credit’

What are 'bad credit loans'?

Bad credit loans are designed for people with a credit report that's less than spotless, or who have little to no credit history. These loans typically have higher interest rates and greater restrictions than other loans, as this helps lenders reduce the risk of you not paying them back. However, they can be useful if managed responsibly.

Importantly, you won't find companies advertising 'bad credit loans' – this is just a common, unofficial name for them.

How can I get a loan for 'bad' credit?

Firstly, work out what you can comfortably afford to repay each month. Then compare loans with different companies to find one that best fits your financial ability and needs. Just remember, we're a credit broker, not a lender†. That means we don't provide credit, but we can make your search for it easier, by helping you compare offers all in one place.

Try to only apply for loans that you're likely to get, since each application will record a hard search on your report that can lower your score. It can be helpful to check your eligibility before you apply, to understand your chances of approval. You can see your eligibility rating for personal loans when you compare them with Experian – it's free and it won't affect your credit score.

What’s the easiest loan to get with ‘bad credit’?

It really depends on your personal circumstances. For example, if you’re a homeowner you may find it easier to get approved for a secured loan. Or if you have little or no credit history, a guarantor loan could be an option. But both these types of loan have risks and might not be right for you.

So ‘what’s the easiest loan to get’ is the wrong question to ask. Instead ask: ‘What’s the best type of loan for me?’. If you’re not sure, have a look at the different types of loan – it’s important to know which type suits you before you apply.

What is 'bad credit' and do I have it?

Having 'bad credit' means your credit history is viewed negatively by companies, so you'll probably 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 could be because you have negative influences on your credit report, such as:

• Late payments
• Defaults
• County Court Judgements
• An IVA, DMP or DRO
• Bankruptcy
• Too many hard searches (for example, these are recorded when you apply for credit)

It could also be that you simply don't have much of a credit history for lenders to base a judgement on. This is a common problem if you:

• Are a young adult and haven't had time to build up a credit record yet
• Have never taken out credit or opened a bank account
• Have recently moved to the UK, as credit history is not transferable across borders

How can I get better rates and higher limits?

You could consider a loan with higher risk

If you're not willing to pay high rates, or you need a large amount, you may still be able to find a loan that fits your needs – even if you have poor credit. But usually, the trade-off is that you'll have to accept higher levels of risk.

There are other types of loan for bad credit you may want to consider:

• 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 own assets, such as your home, if you struggle to keep up with the payments.
• Secured loans – where you use your home, car, or another asset as collateral, meaning you could lose it if you fall behind on your repayments. However, collateral reduces risk for the lender, so they may offer you better rates or larger limits than you'd get otherwise.
• Debt consolidation loans – where you move debts from multiple accounts to a single loan. This type of loan may help you simplify your payments and reduce the amount you pay in interest. But they’re not for everyone. Even if the loan has a lower rate than your existing credit accounts, you may end up paying more in interest if the loan is taken out over a longer period.**
• Credit union loans – you may be able to join a credit union. These are not-for-profit organisations who’ll look beyond a poor credit rating when deciding whether to grant you a loan. However, some credit unions restrict membership to people who live in a certain area or belong to a certain profession. Others insist you save with them first before you can borrow.
• Budgeting loans – If you’re on benefits, you could be eligible for an interest-free loan from the government. The maximum you can claim is up to £812 (correct as of May 2022), and the money must be used to cover essentials such as clothing, rent and food. You must be claiming certain benefits to apply. You can apply through the Gov.UK website.

Try and improve your credit score

Your credit score isn't set in stone – it's shaped by your financial behaviour, so you have the power to influence it. There are several steps you may be able to take 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'll be updated every 30 days if you log in. And don't worry – checking your score won't affect it.

Managing your loan repayments

A 'bad credit loan' might come with high interest rates and low limits, but it can be an opportunity to improve your credit history by showing that you're a reliable borrower. Over time, sticking to the loan repayment schedule should start to boost your credit score, helping you get better credit deals in the future.
Here are our top three tips for when you have a loan:

• Draw up a monthly budget and stick to it, so you never miss a loan repayment
• Try not to add to your debt while paying off the loan, as this may damage your score and put pressure on your ability to make repayments
• If you're worried you won't be able to make a payment, talk to your lender as soon as possible to discuss your options

Getting help with debt

If you’re worried about money, you’re not alone. There are many debt charities and companies that offer free independent advice for everyone. They can advise you, and could act on your behalf to help with any debts you might have.
MoneyHelper is a free, government-backed money guidance service – their site includes a handy Debt Advice Locator tool that can help you find confidential debt advice.
Other places to turn include: National Debtline, StepChange Debt Charity, PayPlan, AdviceUK.