If you have a less than perfect credit score it can be difficult to borrow money, loans for bad credit could enable you borrow.
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Loans for bad credit are personal loans designed for people with a poor credit score. They're usually unsecured loans. 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.
You may have a bad credit score if you:
Have never taken out a loan or any credit product before
Are not on the electoral register
Have missed or defaulted on payments
Have a Court County Judgement (CCJ) or Individual Voluntary Arrangement (IVA)
Are or have been bankrupt
You can improve your credit score but it takes time. Your credit history dates back 6 years, so recent good behaviour doesn't automatically wipe out the bad. This can be a long process.
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. The named guarantor is liable to pay your loan if you can't.
Some lenders offer secured loans for bad credit. A secured loan is where you offer something valuable, like your car, to the lender, which they’ll take if you can't repay the loan.
When used responsibly, bad credit loans can help you build or rebuild your credit rating. This will give you more borrowing options in the future.
Loans for poor credit aren't the same thing as payday loans.
Payday loans are short-term personal loans with extremely high interest rates, for example 1,355%. This becomes a very expensive way to borrow money.
Payday loan providers may offer fast loans or instant loans, and some may not even check your credit file.
Payday loan charges are capped overall, meaning you will never pay back more than twice what you initially borrowed.
People with bad credit often apply for payday loans because their loan applications have been rejected by traditional lenders.
But some banks and building societies do offer loans for bad credit. These loans are a more long-term solution than payday loans, and their interest rates are generally lower.
That said, low APR loans for bad credit, don't really exist. The average APR for bad credit loans is around 49%.
To put that in perspective, the best personal loan rates for those with good credit are around 3%. So it's less likely to get low APR loans for bad credit.
A bad credit loan may be a good choice if you:
Have a bad credit score, or no credit history
Need a loan for a short time
Know you will be able to pay it back on time every month
Have been rejected for a normal personal loan
Are from overseas and 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 bad credit score. A rejection could damage your score even further.
If you have never taken out a loan, credit card or mortgage, you will have very little credit history. You have no proof that you can repay money what you owe.
Loan lenders may be unwilling to offer you the best loans because they don't know if you can stick to a payment plan.
Loans for bad credit are usually between £500 and £25,000.
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.
The average Annual Percentage Rate (APR) for bad credit loans is around 49%. Low APR loans for bad credit are less likely and are much higher than normal personal loans, because the lender most likely thinks there’s a chance you will not repay the money.
The costs of a bad credit loan are usually 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 amount, a fixed loan may be a better option.
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.
You could face penalties or extra charges if you don't keep up with repayments. A lender could even take out a county court judgement (CCJ) against your name.
You may be forced to file for bankruptcy if there's no way for you to repay the loan and this can have affects for years to come.
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 may make you seem to the lenders you are applying to that you are desperate for credit, and this could affect your credit rating as well as lead to denied applications.
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.