Do you need to borrow a small amount of money over a short period of time? It’s possible to get a short-term loan even if you have bad credit. Learn how short-term loans for bad credit work and explore their pros and cons below. Search loans with Experian to find the right one for you.
A short-term loan for bad credit lets you borrow money and pay it back over a set number of weeks or months. It can be used to plug a gap in your income, such as when you need to spread the cost of emergency expenses. It’s also designed for people with poor credit who find it harder to get approved by lenders.
Short-term loans for bad credit are one of the most expensive types of credit. Lenders can charge an APR of up to 1,250%. If you borrow £200 for 30 days at that rate, you’ll pay £48 in interest. Not all short-term loans cost this much though.
One reason for high rates is that a poor credit score can make lenders think you’re less likely to pay them back. Charging more can help them manage this risk. But your credit history isn’t the only thing lenders look at — for example, they may offer a lower rate if they’re impressed by your income.
There are limits on how much lenders can charge for short-term loans. You’ll never have to pay back more than twice the amount you borrowed when you took out the loan. So if you borrow £200, the maximum you’ll have to repay is £400 including interest and fees.
Short-term loans for bad credit tend to be small loans. You can typically borrow between £50 and £1,500. It may be easier to get approved for the bigger amounts if you earn more or borrow for longer.
Anything between a few weeks and up to 12 months. You may see some lenders advertising short-term loans that run for longer — but these tend to be more like traditional personal loans which means it can be harder to get approved.
They can mean the same thing, but not always. The name ‘payday loan’ came about because the cash you borrow can tide you over until your next payday. You may see this name used more often for the loans with the shortest terms and highest rates.
Like any type of loan, a short-term bad credit loan has pros and cons.
Advantages of short-term loans for bad credit include:
Easier to get accepted. Because they’re designed for people with low credit scores, your chance of approval may be better.
Quick access to funds. Some lenders approve and set up short-term loans within hours. This can be handy if you need cash for an emergency.
Unsecured. Short-term loans are usually a type of personal loan which means you don’t have to put your home or car at risk (as you do with logbook loans for example).
Disadvantages of short-term loans for bad credit include:
Expensive. The benefits of a short-term loan come with a big price tag. You’ll pay a higher rate of interest than you would on most other forms of credit.
Short-term. As the name suggests, a short-term loan doesn’t run for long. Look for a long-term loan if you want to borrow for more than a year.
Small amounts. If you need to borrow several thousands of pounds, a short-term loan for bad credit probably isn’t right for you. Check out the alternatives below.
Risk of missed payments. Only get a short-term loan if you’re sure you can pay it back in full and on time. Missed payments lower your credit score further and can lead to fines, defaults and even legal action.
Impact on your credit history. Your score will dip for a while when you apply for a loan. Being refused credit can make lenders think you’re more of a risk, so check your eligibility first. Also, lenders with strict criteria may see a short-term loan as a sign you’re having trouble with money — so it might be something to avoid if you have an important application coming up, such as for a mortgage.
No, you won’t find a reputable lender in the UK that offers short-term loans without doing a credit check. Credit checks are required by the Financial Conduct Authority (FCA) which regulates lenders. The good news? Short-term bad credit loans are designed for people with a poor credit history. These lenders may place more importance on things like your income and employment history.
It’s possible to get a short-term loan on the same day you apply — sometimes within an hour. This can be handy if you need cash urgently, such as for fixing a broken boiler on a freezing winter’s day.
You may be able to borrow more or get lower rates with a guarantor loan. A guarantor is someone who agrees to make the payments if you can’t — usually a parent or partner. It’s one way to improve your chances of acceptance if you have bad credit.
Another option is a secured loan. This type of loan is tied to your house or car, which the lender can sell as a last resort to get its money back if you don’t repay them. A secured loan can reduce risk for lenders which means they may be more likely to approve you.
If your need isn’t urgent, it’s a great idea to improve your credit score. A higher score will help you access better offers such as a low interest loan, purchase card or money transfer card.
It’s always worth shopping around for the best deal. Experian lets you compare loans so you can spot the right one for you. Also, we calculate your chances of approval so you can apply for the short-term loan you’re more likely to get.
Searching is free, takes a few minutes and doesn’t affect your score.
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