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    Getting a loan with bad credit

Getting a loan with bad credit

If you’ve got bad credit you might be able to get a bad credit loan - these usually come with higher interest rates than mainstream loans and might require you to secure something (your car or your house, for example) against the loan.

  • You should consider a bad credit loan if you need to borrow more than £1,500 and have been rejected by high street lender

  • For loans of less than £1,500 a credit card will be much cheaper.

  • If you take out a bad credit loan and manage it well, it can help you improve your credit rating.

  • Use our credit card checking service to find out which cards you are likely to get.

Is a bad credit loan right for me, and what do the different types offer?

If you have bad credit, the types of loan you’ll be eligible for may be limited.

Some types of loans are specifically tailored to borrowers with bad credit. These include:

  • bad credit loans

  • homeowner loans

  • guarantor loans

  • logbook loans

If you have good credit you should be able to choose from all the different types of loan and you shouldn’t apply for bad credit options.

What is a bad credit loan?

Bad credit loans are designed for people with a poor credit record, or who have little or no credit history.

These loans typically charge higher interest rates than other loans, and the amounts lent will normally be lower. This helps lenders reduce the risk of you not paying the money back.

Instead of basing the eligibility for a loan simply on a credit check, bad credit lenders look at an individual’s financial circumstances to assess whether they can afford the loan they are applying for.

So even if you have bad credit or have missed debt payments in the past, you may still be able to get a loan.

When should I consider a bad credit loan?

You should consider a bad credit loan if you need to borrow money and think you will be turned down for a mainstream loan.

TotallyMoney’s eligibility checker will give you an idea of which loans you might be eligible for.

To be eligible for a bad credit loan, you must

  • be at least 18 years old

  • have a current account

  • legally live in the UK

  • be able to show you can repay the loan

When you take out a bad credit loan you need to be sure you can afford to pay the money back. If you default on a bad credit loan, it will make your credit history even worse.

The good news is that if you get a loan with bad credit, and make the repayments on time, you can improve your credit score and eventually be eligible for better loan products.

Types of Bad Credit Loans

Personal loans

This is the most common type of loan and involves borrowing between £1,000 and £25,000, repayable over one to seven years. The interest rate is normally fixed, meaning you know exactly what you’ll repay. For example, if you borrow £5,000 at an interest rate of 40% over three years, the monthly repayments would be £224, making a total repayment of £8,054.

Guarantor loans

These work in the same way as personal loans, but also involve an agreement with a third party, usually a family member or friend (guarantor), to ensure the loan is repaid. If you don’t make repayments, the guarantor can be held responsible and chased for the debt. If you have a bad credit history, this may be the only way you can borrow.

Homeowner loans

These are different to personal loans as they are secured on your home. This means you can often borrow a much larger sum of money. But it also means the lender can repossess your home if you can’t afford to pay it back – so this type of loan is much more risky. Interest rates are normally variable and the repayment period can be up to 25 years.

Instalment loans

Personal or guarantor loans can also be referred to as ‘instalment loans,’ because you repay the money in instalments over a certain period of time.

Logbook loans

With this type of loan you secure the borrowing against your car. In fact, you hand over temporary ownership of your car to the lender, although you can still use it.

When you take out a logbook loan you’ll sign a credit agreement and a ‘bill of sale’. If the lender registers the bill of sale with the High Court it can take possession of your car without a court order. It might do this if you fail to make loan repayments on time.

Logbook loans can be very expensive with APRs up to 400%. You risk losing your car if you can’t repay the loan as agreed.

What happens if my loan application is refused?

If you have been declined for a loan, you shouldn’t rush into applying for another loan.

Each credit application will appear on your credit record. If you make several applications in a short time, it will tell lenders you are desperate for credit which can put them off lending to you.

You can ask the lender why it declined your application – the answer might help you make successful applications in the future.

You should also check your credit report for errors and raise a dispute if you find any wrong or outdated information.

Check your credit free report

Using a bad credit loan to pay off existing debts

Some people take out a bad credit loan to pay off existing debts. This is called “consolidating” your debts and the new loan is often referred to as a “debt consolidation loan”.

You use the new loan money to pay off all your credit cards, store cards, loans and overdrafts. You then repay the new loan with a single payment each month (rather than multiple payments on different debts).

Using a consolidation loan can help you budget. It will also save you money if the interest rate on the debt consolidation loan is lower than the interest rates on the debts you pay off.

When you apply for a debt consolidation loan for bad credit, most lenders will check your credit record. But some lenders will offer you a bad credit consolidation loan, even if you have a poor credit history.

What interest rate will I pay?

Whatever form of bad credit loan you choose, the interest rate you are offered will still depend on your credit history, and it may not be the interest rate advertised by the bank or building society.

Bad credit loans come with higher interest rates than mainstream loans.

Only 51% of successful applicants* will be offered the ‘representative’ APR. The rest will be offered a higher interest rate, and others with really bad credit histories will be rejected.

You normally don’t know what interest rate you will be offered until you apply for the loan. And applying for lots of loans can damage your credit rating, because banks don’t like to see that you’ve been rejected several times.

The good news is that TotallyMoney’s loan comparison service will tell you if you’re likely to be accepted for a loan before applying. It carries out a ‘soft search’ of your credit data that will not leave a mark on your credit file.

Our personalised credit comparison service then compares a wide selection of loan providers to give you the best possible choice. This means you can only apply for loans that you know you’re likely to get.

Beware Brokers Online

Some brokers offer to find loans in return for an upfront fee.

Others may recommend loans that pay them the most commission, rather than the right option for you.

Our online comparison tool does this for free, so you don’t have to part with cash just to do a simple search.

Pros and Cons of bad credit loans


  • You have a bad credit history and need to borrow more than £1,500

  • You really need the money for an important purchase

  • You can definitely afford the monthly repayments


  • Interest rates can be eye-wateringly high

  • Never get a loan to buy something you don’t really need if you are already struggling with debt

  • Always borrow the smallest amount, over the shortest period of time possible

What are the alternatives to taking out a loan if I have bad credit?

A credit building credit card could be a good alternative option to a bad credit loan. This type of credit card is designed for people who have poor credit.

While a loan might allow you to borrow a larger amount, with a credit card you can apply for a smaller amount to improve your chances of being accepted.

If you make credit card repayments on time, you could have your credit limit increased.

Compare credit building credit cards

Check your loan deals

Find the loans you’re most likely to be accepted for. You could even be pre-approved.

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