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Bad credit

If you have a less than perfect credit score it can be difficult to borrow money, but loans for bad credit could help. However, missing repayments will leave your credit rating worse off than ever, so it’s important to think carefully before applying.


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What are bad credit loans?

Loans for bad credit are personal loans designed for people with a poor credit score or who have little or no credit history. Often this is companies offering unsecured loans with wider acceptability criteria. However, people with poor credit who own their own home might find that secured loans are cheaper and available. Bad credit loans can be an expensive way to borrow money because the interest rates are often high because of the risk the lender takes on.

The interest rates in our comparison range from 23.3% to 99.9% APR. To put that in perspective, the best personal loan rates for those with good credit are around 5.5%. Shopping around to find the best interest rate you’ll qualify for can make a huge difference to how much you pay back overall and how long it takes you to repay what you owe.

You may have a bad credit score if you:

  • Have never taken out a loan or any credit product before

  • Frequently take out or apply for new accounts or take out credit too often

  • Are too close to your credit limits

  • Are not on the electoral register

  • Have missed or defaulted on payments

  • Have had a Court County Judgement (CCJ), Debt Relief Order, or Individual Voluntary Arrangement (IVA) in the past few years

  • Are or have been bankrupt

You can improve your credit score, but it can be a lengthy process. Your credit history dates back 6 years, so while recent good behaviour will improve your report, it doesn't automatically wipe out the bad. Improving your overall rating requires dedication.

If you need money before you’ve had a chance to improve your credit score, you may want to look for loans for people with bad credit. 

Bad credit loan lenders may ask you to provide a guarantor, particularly if you have little or no credit history. The named guarantor is liable to pay your loan if you can't. They may have to put up an asset as security, for instance their house. They could lose their home if you don’t pay on time and they can’t afford to pay your debts.

Some lenders offer secured loans for bad credit. A secured loan is where you offer something valuable - like your car or home - to the lender, which they’ll take possession of if you can't repay what you owe them.

When used responsibly, bad credit loans can help you build or rebuild your credit rating. If you repay in full and on time, it helps show you are a reliable borrower. This will give you more credit options in the future.

Loans for poor credit aren't the same thing as payday loans.

What’s the difference between payday loans and bad credit loans?

Payday loans are short-term personal loans with extremely high interest rates, for example an APR of around 1,500%. Over the long term, this becomes a very expensive way to borrow money. Providers may offer fast or even instant loans.

Payday loan charges are capped overall, meaning you will never pay back more than twice what you initially borrowed. The caps also say that someone taking out a loan for 30 days will pay no more than £24 in fees and charges per £100 borrowed. If you miss a payment, the most you can be charged in default fees is £15 plus interest on the loan itself.

People with bad credit often apply for payday loans because their other loan applications have been rejected by traditional lenders, but this can be a risky way to get financing.

Before considering a payday loan, see whether other options are available, whether that’s a guarantor loan, secured loan, or a long-term loan for people with poor credit. All these should have lower interest rates, making borrowing significantly less expensive. They also offer longer-term solutions which can be helpful.

If you’re looking to borrow a small amount of money over a short period - the total amount you repay will be lower with a payday loan than a bad credit loan despite the higher APR. That’s because you’ll be borrowing it for a far shorter period.

In almost any other situation, a loan for bad credit will work out cheaper.

Is a bank loan for bad credit right for me?

A bad credit loan may be a good choice if you:

  • Have a bad credit score, or no credit history

  • Know you will be able to pay it back on time every month

  • Have been rejected for a normal personal loan or find eligibility checkers say you won’t qualify for a personal loan

  • Are from overseas or have spent several years outside the UK, so UK banks have no information about you

The cheapest loan rates aren't usually available for those with bad credit. You’ll most likely be rejected if you apply for low interest personal loans when you have a poor credit score. A rejection could damage your rating even further.

If you have never taken out a loan, credit card or mortgage, you will have very little credit history. That means you have no proof that you can repay money that you owe. As a result, loan lenders may be unwilling to offer you the best rates because they don't know if you can stick to a payment plan.

Making small payments on a credit card and clearing them each month can help you build up a positive credit history to improve your score. Make sure you’re on the electoral roll as this will also help you improve your score.

How much can you borrow using a loan for bad credit?

Loans for bad credit are usually between £1,000 and £50,000.

Lenders will look at your credit file before they approve your loan application. They don't see the same credit score you do and have their own scoring system.

A higher credit rating means better rates and more loans available to you.

Bad credit lenders also take into consideration your income, outgoings and existing debts to assess whether you could afford the loan repayments The best loans are usually given to those with higher incomes and lower debts.

How much will a bad credit loan cost you?

The average Annual Percentage Rate (APR) for bad credit loans typically falls between 23.3% and 99.9%. Low APR loans for bad credit don’t really exist. The rates are much higher than normal personal loans, because the lender thinks there’s a chance you will not repay the money.

The costs of a bad credit loan are usually all covered by the APR. It's the amount of interest you have to pay on top of the principal loan repayment and includes any additional fees.

Borrowing money when you have bad credit can be very expensive. When searching for bad credit loans online, be sure to check the APR as it has a huge impact on your monthly repayments.

Some interest rates on personal loans are variable. This means your payments aren't fixed and can change from month to month. While the APR may be lower, variable rate loans are unpredictable. If you want the certainty of a fixed monthly repayment, a fixed loan may be a better option.

What are the risks with loans for bad credit?

Bad credit loans are among the most expensive ways to borrow money. If you take out a bad credit loan because you’re in financial difficulty you may not be able to pay it back on time. The more you miss payments, the worse your situation will become.

Any missed payments will go on your credit report, worsening your score. You could face penalties or extra charges if you don't keep up with repayments. If you miss multiple payments you will default on the loan. A lender could then take out a county court judgement (CCJ) against your name and appoint debt collectors.

You may be forced to file for bankruptcy if there's no way for you to repay the loan and this can have effects for years to come.

If your loan is secured against an asset such as your home, you could lose it if you can’t make repayments.

What are the advantages of a bad credit loan?

The main advantage of bad credit loans is that they're designed for those who wouldn't normally be able to borrow money.

You can use a bad credit loan to build up your credit score. To do this, you must make all the payments on time and in full.

If you can afford to, you could initially take out a small amount with a bad credit loan. Once you have proved you can repay it and your score improves, you could borrow more money at a lower rate. 

Remember, lots of loan applications make lenders think that you are desperate for credit, and this could lead to denied applications.

How we calculate Rep. Example, Total repayable and Monthly repayments

The calculations on the table are designed as an indicator, and may not be exactly what you end up paying. This is because different suppliers have slightly different ways of calculating these figures. However, they will be very similar to the final amounts, usually within a few pounds of the final total. You will always see the final repayment amounts before signing the credit agreement.

Last updated: July 30, 2023