Getting a loan when you have a poor credit rating can be a challenge, but all is not lost – there are still options out there.
Your credit score may be bad for a number of reasons, from missed or late repayments to CCJs or having been declared bankrupt. If you have never borrowed money before, that can give you a low score as you have no proven track record of reliably making repayments.
The interest rates tend to be high on bad credit loans, and there is usually less choice for borrowers. For this reason, it is typically best to only borrow in this way to cover unexpected emergency costs (such as a new boiler if your old one breaks). If you want the loan for a large non-essential purchase, consider whether it’s worth waiting a while and taking steps to improve your credit rating before applying for a loan to secure a better deal.
If you are sure that you want to take out a loan and time is of the essence, even with a poor credit rating there may still be different types of loan available to you.
Researching what’s out there
It’s worth comparing quotes before you apply for a loan to filter out the lenders who are less likely to offer you a loan. This will check how likely you are to be approved for different loans from different providers, without harming your credit score.
Once you apply for a loan, the prospective lender will perform a hard search, which can negatively impact your credit rating – especially if you are refused the loan. An eligibility checker reduces the likelihood of this happening as you can rule out those that you are unlikely to be accepted for before you even try and apply.
Below is a short summary of some of the different types of loan that may be available to you with a bad credit rating – you can find out more about different loan types on our loans page.
Personal loans
Your choice may be limited in terms of unsecured personal loans, but it is worth researching what could be available. If you are accepted for this type of loan, the interest rates are likely to be fairly high and the maximum amount you can borrow may be fairly low.
Guarantor loans
This type of loan is where a family member or friend commits that they will cover the loan repayments if you are unable to do so. The route is still likely to come with higher interest rates, but may enable you to borrow more. However, be mindful of the potentially big pitfall if you can’t repay the loan. It could be damaging to your relationship with the person who provided the guarantee as it could get them into debt and could even impact what they can borrow in the future.
Secured loans
If you are a homeowner, you can use your property as collateral against a secured loan. Some lenders may consider securing the loan against other assets, such as a car (if you own it outright). This type of loan is more likely to get approved as the lender has a safety net to fall back on if you are unable to keep up with the repayments.
The main downside to a secured loan is a biggie though! If you cannot keep up with the loan repayments, you risk losing your home (or any other asset that it is secured against) as they can be repossessed by the lender.
Hope for the best, but plan for the worst
Hopefully everything will go swimmingly – taking out a loan and making each repayment on time can even help build your credit rating back up. But remember that sometimes life can throw us a curveball, so it can be worthwhile to work through your budget to be sure you can afford the repayments before you go ahead, including thinking about worst case scenarios such as how you would keep up repayments if you lost your job. Having a plan in place to ensure you are confident that you could cover the monthly repayments in a change of circumstances can give you peace of mind and help you avoid future financial difficulties.
Some questions to consider
Do I need it now or can I take some time to improve my credit rating first?
Can I definitely afford the monthly repayments?
If I go ahead at the offered interest rate, how much will I repay in total?
How much will the monthly repayment be?
Is there an arrangement fee or admin fee charged?
If I am late with a payment, what are the penalties?
Ready to start looking for a loan? Let’s help get you started.
