How Do I Get a Loan With Bad Credit?
Unfortunately a bad credit score, even if this is due to circumstances outside of your control, can impact your ability to take out further credit. So if you’re facing an unexpected expense, and need to take out a loan, a poor credit rating can make this more difficult.
There are a number of ways in which you can start to boost your credit score, but these can take a little bit of time. So what can you do in the meantime, when you need to borrow money? We’ve explored some loan options below, to help you get started!
Types of Bad Credit Loans
If you have a low credit score, you can look into loans that are aimed at people with a less than perfect credit history. Some more traditional lenders, like banks, may be hesitant to lend to individuals with poor credit histories, but there are many other lenders who offer bad credit loans.
A payday loan is one of the shortest loans you can apply for – generally you’d borrow the money for a couple of days or weeks at a time. Payday loans are paid back as a lump sum, which, as the name implies, will in most cases be your next payday. Because payday loans are so short term, even if the APR (Annual Percentage Rate) is comparatively high, you probably won’t repay too much interest overall.
Short Term Loans
If you’re looking to take out a larger loan, and spread the cost over several months, a short term instalment loan may be a good option. You should be able to choose the best repayment dates for you, to line up with the dates you receive your wages, and borrow exactly how much you need.
If you’re able to find a close friend or family member with a good credit history who’s happy to act as your guarantor, you have a fairly high chance of being approved for a guarantor loan. Your guarantor agrees to make the due repayments should anything happen to mean you’re unable to keep to them. They essentially act as your security when borrowing money.
With a secured loan, rather than an individual lowering the risk for the lender, as with a guarantor loan, you use a valuable asset to act as collateral. Because the lender has the option of repossessing your assets should you default on the loan, mitigating their risk, they may not be as concerned about your credit score as other lenders. However in order to be eligible for many secured loans, you’ll need to have assets to act as security, such as your home or vehicle.
Bad Credit Loans
As with payday loans, the name says it all when it comes to bad credit loans. These loans are specifically designed for people with poor credit histories, allowing them to borrow money when faced with an emergency expense. Bad credit loans also offer these individuals a chance to start rebuilding their credit score.
Advantages and Disadvantages of Bad Credit Loans
Before applying for a loan, it’s important to weigh up the pros and cons, to determine whether it’s the best choice for you. While bad credit loans may be the only option for some people, in terms of taking out credit, they may not be the right choice for everyone.
Bad Credit Loan Pros
- As most bad credit loans are short term, even if the interest rates are higher, typically you won’t pay much interest in total
- Bad credit loans are more accessible than most other forms of credit
- Taking out credit can help you improve your credit score – by making repayments on time or early, you’re showing other lenders that you can manage your money well
Bad Credit Loan Cons
- The APR with bad credit loans is usually higher than than it is for other loans
- Some more traditional lenders may assume that when you take out a bad credit loan, you’re having problems with your finances
- The lending limit can be lower with bad credit loans, so you may not be able to borrow a large amount of money
You may also wish to consider loan alternatives. If you’re struggling with your finances, for example, taking out credit may not be a good decision, as you could find yourself in a spiral of debt. If you’re experiencing financial difficulty, it’s generally helpful to seek independent third party help, from organisations like Step Change and PayPlan. They can provide free and impartial advice, and help you get back on track with your finances.
It’s also important to bear in mind that if you’re able to save up for something, a loan probably isn’t the best option. Short term bad credit loans are intended to cover emergency expenses, such as a broken boiler, or needing to replace an essential home appliance. Inessential costs, like going on holiday or the newest gaming console, can typically wait until you’ve saved enough money to pay for them!
Am I Eligible for a Bad Credit Loan?
In terms of eligibility requirements, while these differ slightly from lender to lender, most bad credit lenders ask that you meet at least the following criteria before applying for a loan:
- Be aged 18 or above
- Be a UK resident with a UK based bank account
- Have a regular income
Lenders will often look at things like your employment history and monthly budget when making a loan decision too. If you can comfortably afford to repay the loan, lenders should consider your loan application. It should be noted though that if your name is on the insolvency register, due to a recent bankruptcy or insolvency, you may find it more difficult to take out credit, and may need to find a specialised lender.
If you are looking into bad credit loans, it can be helpful to use a loan comparison site or financial broker service. Both of these can compare lenders for you, and brokers may even be able to match you with the lender most likely to approve your application, based on your personal circumstances and credit history.
Just don’t forget to check whether the comparison site or broker charge fees for their services – you don’t want to be hit with any hidden costs. You can rest assured that My Payday Loan Broker never charge customers a fee, as we instead work on a commission basis with our lenders.