How to get a loan with bad credit? That's a really good question because, among the great British public, there is a lot of genuine confusion and misunderstanding about what the term "bad credit" actually means.
That confusion is understandable because:
In this article, we look at:
Credit scores, sometimes known as "credit ratings", are estimations - expressed as a number - on how creditworthy you are based upon the financial information in your credit file.
To find out what your credit score is, you need to get in touch with the four main credit reference agencies. Click on the links below to get yours:
Each credit reference agency uses their own methodology when working out borrowers' credit ratings. The top two gradings are "excellent" and "good" and, below, you'll see just how your score differs between agencies.
An average score is:
If you have a score of 500, the following credit reference agencies would consider your chances of being approved for a bad credit loan as:
Please remember however that finance companies use more than just borrowers' credit scores when they're deciding whether they'll approve a loan or not.
You can improve your score in a number of different ways. It may take a few months for each of these actions to produce a positive result so it's best that you get started on them straight away:
It is possible to get a loan with poor credit, but the types of loans you may be approved for will be limited in number compared to those for people with better credit ratings. As you improve your score, more choices will open up to you.
The types of loans you might get approval for are:
Poor credit loans have a terminology all of their own. When you're checking out which borrowing options may be available to you, use this guide to help you understand the terms used before you accept any offer from poor credit lenders (subject to status).
Interest is what finance companies charge you for lending you their money - it's how they make their profit. The higher the interest rate, the more interest you'll pay back over the course of the loan.
Finance companies offer different interest rates to customers depending on the risk they perceive when agreeing to lend a particular customer money. The representative APR is the interest rate offered to at least 51% of your lender's customers.
A poor credit loan is a loan offered to someone with a poor credit score. The interest rate charged is higher on poor credit loans because of the higher risk that the loan might default.
Brokers, like Little Loans, introduce borrowers to finance companies. Brokers use their knowledge of each of their lender's ideal customers so that they can match lenders to the right borrowers.
Fees can refer to the following charges:
FCA-authorised and registered finance companies must perform a hard credit search on you when you make a complete application to them for finance - in fact, they're legally obliged to do so.
If there are too many hard searches on your credit file within a short space of time, it will negatively affect your score and make it more difficult to find lenders that would be happy to work with you.
A lender is a finance company which provides loans to consumers. It's the finance company which pays the money into and collects the repayments from your current account.
Finance companies often work with brokers - what brokers do is find the types of customers that the finance companies like to work with.
For most bad credit loans, you make one repayment a month to your finance company for the length of time your loan is due to be paid back over. Some finance companies offer weekly or fortnightly repayment options.
With a secured loan, you pledge an asset (sometimes called collateral) to a lender. The lender can then take possession of that asset if you're unable to pay back your secured loan.
An unsecured loan requires no collateral whatsoever. However, if you are a homeowner and you're unable to make your repayments or you default on your loan, in certain circumstances a lender may be able to put a charging order on your property.
Lenders and other companies (including utility firms, Sky, mobile phone providers and others) use soft credit searches to provide them with an indication on whether your request for finance (or another product or service) is likely to be successful
Soft searches can only be seen by you and the company which carried out the search. They have no effect on your credit score.
The "term" of a loan describes how long you'll be making repayments on your account. For the types of loan offered by Little Loans' panel of finance companies, the term is either:
How can you borrow money if you have bad credit? There are two options - you can apply for a bad credit loan either direct from a lender or through a broker.
You can apply for finance direct to a lender via their website.
You will only be considered for that lender's products and, for every full proposal you make, a hard credit search will be run. You'll normally receive your decision within a minute or two.
Brokers work with a panel of lenders. Your details are sent in turn to the finance companies most likely to say "yes" to your request. Each lender contacted runs a soft credit search on you.
You'll be redirected to the website of the first lender who replies positively. When you're there, fill in their application form to apply. The lender will then run a hard credit search on you before coming back to you with their decision.
It may take two minutes longer applying through a broker but, if you do:
Before you contact any poor credit loan provider, please make sure that they're authorised and regulated by the Financial Conduct Authority.
It's difficult to compare between bad credit loan companies - each one of them caters for different types of borrower.
If you are made an offer by any company, make sure that you're happy with the terms and conditions and that the repayments are comfortably affordable.
We can't guarantee to find you a loan, but we try very hard to find a lender for every customer who applies through us. Before you accept any loan offered, please make sure that you can meet each of the repayments in full and on time without causing you or your family any hardship.
Failure to keep up repayments on any loan you agree to will adversely affect your credit score.
Little Loans is authorised and regulated by the Financial Conduct Authority.
Representative Example: Amount of credit: £1200 for 18 months at £90.46 per month. Total amount repayable of £1628.28. Interest: £428.28. Interest rate: 49.9% pa (variable). 49.9% APR Representative. We’re a fully regulated and authorised credit broker and not a lender