Need a Loan But Have Bad Credit?

by Sarah Portet | Reading time: 5.5 minutes

needaloanbuthavebadcredit

Getting a Loan With Bad Credit

It can be tough when you need a loan to buy a car or for an emergency purchase when you have bad credit, especially if you know you can afford to repay it.

Having bad credit doesn’t mean you don’t have a good income, it just means you have had some problems in the past repaying your debt.

Poor credit scores can happen for a number of reasons. You may have not used much credit so haven’t built up a good score.  Or you could have missed payments on loans such as mortgages, or credit cards.

If you keep on top of your debt repayments, you’re more likely to have a good credit rating.

What Are Bad Credit Loans?

Bad credit loans are like any other loan, accept that the lender is prepared to offer the loan to people with bad credit scores. They are a way of borrowing when you’re finding it difficult to be accepted for credit.

Bad credit loans usually come with a higher interest rate and often you’ll need to guarantee an alternative way to meet the loan repayments in case you have difficulty repaying in the future. For example you might have a family member who could act as a guarantor; who could meet the repayments for you if you weren’t able to.

A guarantor gives a lender peace of mind that they will get their money back, and therefore makes them more likely to lend to you when you have had trouble with your credit in the past.

Types of Loans for Bad Credit

There are a few types of loans that you might find it easier to get approval for if you do have bad credit.

  • Secured Loans
  • Guarantor Loans
  • Peer to Peer Loans

Secured Loans

Secured loans allow you to borrow money while using your home as security often referred to as collateral.  It means the lender can sell your property if you fail to keep up with repayments, in order to get their loan money back. As long as you make the monthly repayments on time and in full, you won’t lose your home.

How does a secured loan work?

Like other types of loan, you’ll need to make set monthly repayments to pay back what you borrowed plus the interest on the loan. The interest rate is calculated as a percentage of the amount you owe – it may be fixed or variable depending on the loan you’ve chosen.

Guarantor Loans

Guarantor loans offer borrowing, with the help of a guarantor. A family member or friend ‘guarantees’ to cover your payments if you can’t. If you are starting out and don’t have a credit history yet Guarantor loans can be a good option.  By keeping up with your repayments you build up your credit score.

How do guarantor loans work?

You borrow money from the lender, and then pay it back in monthly instalments. The only difference is that a third party, your ‘guarantor’ is part of the agreement – having guaranteed to make your payments if you can’t.

Peer-to-peer Loans

Peer-to-peer loans have increased in popularity over the last few years, also known as social lending.  People who want to borrow money are matched up with those who will lend it. The best deals are only available to those with great credit history. If you have a poor credit history, your interest rate could be as high as 30%..

How do peer-to-peer loans work?

You can find lenders on a peer-to-peer lending website, where you’ll be matched with individuals who are prepared to let you borrow from them. These websites are known as peer-to-peer platforms, and they usually charge a fee to arrange the loan.

You will still need to pass credit checks and the peer-to-peer website’s own background checks to be approved for a loan.

What Can You Use a Bad Credit Loan For?

If you are approved for a bad credit loan then you can use it just like any other personal loan to help you pay for larger expenses up front.

According to MoneySuperMarket car loans are the most common loan people aged 18-24 and 45-64 search for.

You can alslo use a bad credit loan to consolidate any debts you have into one debt. However, you need to make sure you’d still be able to afford the monthly payments on the new loan.

Why a Bad Credit Loan Might Work For You

  • A way of borrowing money when other options are not available due to your bad credit.
  • A poor credit loan can help you improve your credit score and credit history, as long as you keep up the monthly repayments.
  • Bad credit loans are usually paid shortly after your application is approved; anywhere from immediately to a few days is the norm.  Giving you quick access to loan money to make a purchase or consolidate debts quickly.
  • You can usually choose to repay your loan over 1 to 5 years and sometimes longer.

Most consumers searching for a personal loan are looking to pay it off after one to five years, according to MoneySuperMarket data from January – October 2018.

What Are the Disadvantages of a Bad Credit Loan?

  • Repossession: if you aren’t able to keep up your repayments on a secured loan then your car or home might be repossessed by the lender.
  • High interest rates. Bad credit loans usually incur a higher rate of interest because of the perceived risk in lending to people with poor credit.
  • Difficulty getting a loan. You might find it difficult to get approval for a loan if you have bad credit.  If you are approved, you may then find that you aren’t able to borrow as much as you wanted
  • Loan fees.  You may have to pay an arrangement fee to get your loan.
  • Missed repayments. As with any loan, if you miss repayments you will damage your credit score.  If you already have bad credit this could make getting any kind of future credit next to impossible.

Bad Credit Loan FAQs

Can I get a loan with bad credit?

It is possible to still get a loan even if you have bad credit.  However you are likely to pay a higher rate of interest.

Am I eligible for loan with bad credit?

You’ll normally need to be over 18 and in employment to get a bad credit loan.

What are the advantages of bad credit loans?

The main advantage is that it gives you an option to get a loan when your options will be very limited. If you take out a bad credit loan and make the repayments each month you can help to improve your credit score.

What are the disadvantages of bad credit loans?

The main disadvantage is the cost of taking out a bad credit loan.  It will likely cost you more with bad credit than if you had good credit to borrow the same amount of money.

Don’t Keep Applying if You Get Refused a Bad Credit Loan

Think very carefully before applying for credit if you have been turned down by a lender.  

Multiple applications in a short time span can put lenders off as you will appear desperate. Each time you make a loan application it will show up on your credit report regardless of whether you were accepted or refused.

You could damage your credit rating further.  It can also affect the interest rate you might be charged.

Where to Get Debt Advice

If you’re struggling with debt, there are lots of places to get free debt advice across the UK. The Money Advice Service has a debt advice locator, where you can find local debt advice online, face to face or on the phone.


Compass Vehicle Services offer car leasing to people with bad credit.

Find out how CVS Ltd could help you lease a brand new car.

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