Loans for people with bad credit
Getting a loan is tenuous enough under normal circumstances, but if you've had a CCJ, default, IVA or similar credit problems in your recent past, it can seem like an impossible task. Well, it’s not impossible to get a loan with bad credit and we have put together a list of lenders where you stand a better change of approval should you apply.
Compare bad credit loans:
- You must be employed with a regular income.
- You must be over 18 with a valid debit card.
- No penalty for early repayment.
- You must be aged between 18 and 70.
- Have an income of more than £700 a month.
- Self-employed are welcome.
- Any purpose loans for tenants or homeowners.
- Bad credit, past CCJs, IVAs or defaults.
- No upfront fees.
The process of applying for a loan starts with you submitting your personal details to the lender, they then submit the details you provided to one or more Credit Reference Agencies, this is called a credit check. The reference agency returns a score known as a credit report; this is based on the information they’ve gathered about your financial history.
The reasons your credit check may return a bad credit rating include; a County Court Judgement (CCJ), missed payments on debts you’ve had with other lenders or on credit cards, a bankruptcy or an Individual Voluntary Arrangement (IVA). It’s important to note that some of the entries in your credit history may be mistakes, for example if you’ve been the victim of identity theft, therefore it would be in your interest to get a copy of your credit report and review it before applying for a loan.
Other common reasons why people get turned down for loans include:
- Not providing an address where you’ve lived for a long enough period; if you’ve lived at your current address for less than 3 years they’ll typically ask you to provide a previous address. You also need to be registered on the electoral roll at your current or previous address; this is used to confirm your name and address.
- Having a thin credit file; this means the Credit Reference Agencies have limited information about your financial history, either because you haven’t used credit services in the past or you’ve emigrated from another country; financial history from outside the U.K. is not gathered by U.K. Credit Reference agencies.
Types of loansIf you’re getting a personal loan, there are two categories to choose from, these are secured or unsecured bad credit loans, below is a review of each:
1. Secured loans
These are loans where the lender requires some collateral before they can approve a loan, this normally means your home if you have some equity. Other types of secured loans include Pawn broker loans, where you can pawn anything of value to secure the loan, and logbook loans where you use your vehicle as the collateral.
Collateral provides lenders with a safety net; they know that if you fail to pay back the loan, at least there's an asset which provides them a way to recoup their money. This makes things easier for them, if you're a home owner, the equity in your property can mitigate a bad credit rating and make it easier for you to get credit.
2. Unsecured loans
These are personal loans whereby the lender doesn't require collateral, if you fail to repay the loan, your possessions are not immediately at risk.
In this instance, the lender relies on the trust put in you to pay back the loan which makes it a risky loan, having a poor credit history elevates that risk even further, and that’s why unsecured bad credit loans incur very high interest charges when compared to secured loans.
Other disadvantages include:
- Lower loan amount: lenders prefer to keep unsecured loans at low amounts perhaps because of the risk involved.
- Although the loan isn't secured, if you default and are taken to court, your assets might get ceased and sold off in order to recover the money owed.
1. Credit cards
If you are unable to get a loan due to a very poor credit rating, a credit card might be a viable alternative since approval is relatively easier.
Another advantage of credit cards over loans is flexibility; with a loan, you agree to a set repayment period (e.g. 5 years) whereas on a credit card you can pay back the money at any point. The money you've paid back also becomes available credit, which you can re-use should you need it in the future.
2. Payday loans
These are loans that you take out on the promise of paying the full amount back at the end of the month, typically they're only available to people that are currently employed. There is a credit check, although its influence is not as strong as it would be on a loan.
Payday loans are ideal for people that need small amounts of money, typically up to £1000, and can pay it back in a short period of time.
Learn more here.
3. Guarantor Loans
These are loans where you ask someone you know to vouch for you and act as the back-up against non-payment; the lender will demand payment from them if you fail to pay. For someone to qualify as a guarantor, they must be a home owner and have a good credit rating.
For more see: Guarantor loans.
If you are a homeowner and have some equity in your property, it might be cheaper to remortgage rather than take out a loan. The advantage of remortgaging is that you can release some of the value locked into your property and get the money you need without adding a new bill to your monthly outgoings, the downside is that the process is a lot longer than applying for a personal loan.