5 ways to borrow money with bad credit

Can you borrow money with bad credit? 

You may still be able to borrow money, even with bad credit.  

There are lenders around who specialise in helping those with a less-than-ideal credit history, so be sure to shop around before applying. You can use an eligibility checker to see if you'd be accepted before you make a full application – lenders won't be able to see this on your credit file. 

You might find your credit history restricts the amount you can borrow and could also mean you pay a higher interest rate. However, repaying what you borrow may help improve your credit score over time, and get you a better deal next time you apply. This means making your payments on time, in full each month.  

Remember, missing a payment or paying late can seriously harm your score. It can also result in extra fees and charges, which could make it difficult to get credit again. 

5 ways you can borrow with bad credit 

1. Credit cards for bad credit

Some lenders specialise in offering credit cards for bad credit – usually at lower limits and higher interest rates. 

Credit cards can help to build your credit history if you make your full payment on time each month.  

If you’re able to pay your full balance off and you don’t use your card to make any cash withdrawals, it can mean no interest will be charged. This means you’ll only pay back what you borrowed. 

The interest rate and credit limit can vary. You can use an eligibility checker to see if you’ll be accepted without affecting your credit score. 

2. Secured Loan

A secured loan is a loan that is tied to your property, usually a house (but some lenders may accept a car or savings as collateral).  

• You need equity in your property to get a secured loan. This is the amount of your home that you own – the amount you’ve paid off compared to the balance remaining on your mortgage. The amount of equity you have is used to calculate the amount you can borrow. 
• Secured loans are tied to your home, so the risk to the lender is lower, as they can repossess your property in the event of you failing to pay. This means you could be offered a lower interest rate than you would with a personal loan. 
• Secured loans generally offer longer timescales to pay the money back and you can often borrow larger sums of money.  
• Missed payments could put your home at risk, so make sure you can afford to make the loan repayments each month. 

Like with most lending products, you can check your eligibility before applying to see the amount, term and rate you may be able to get. 

3. Personal loans

Personal loans - also known as unsecured loans - are not secured against something you own, such as your home or car. If your credit score is low, you may be offered a higher interest rate than with a secured loan.  

Personal loans also tend to run for a shorter timeframe than secured loans. With Ocean, you can get a personal loan for up to 5 years.  

If you miss payments on a personal loan, your credit score may be damaged, but your home will not be affected immediately. However, if missed payments lead to legal action, such as an IVA or bankruptcy, your home may be at risk. 

4. Guarantor loans

Guarantor loans involve a third party (often a family member or friend) co-signing the agreement with you. This means that their credit history is also considered for the application, so any marks on their report may impact your chances of being accepted for a loan.  

A guarantor would formally guarantee to cover any missed payments on your behalf, meaning they are equally responsible for making sure the payments are made. 

It’s important that both you and the guarantor are aware that any consequences for missing the payments are shared – if you don’t pay, your guarantor could be left with the bill and a damaged credit history.

5. Credit unions

Another option is applying for a loan with a credit union. These are collectives that offer various forms of financial support to their members. 

Credit unions accept members in accordance with certain criteria, which can vary from occupation, and where you live among other factors. 

What happens if I am rejected?

You may find that you are less likely to be accepted for some lending options straight after being rejected for credit. 

• Every application you make leaves a hard search on your report, where lenders check your details to review your eligibility. These hard searches can stay on your record for up to two years, although it only typically impacts your credit score for twelve months. 
• Try to wait 3-6 months before making an application. Multiple credit applications within a short period of time can suggest to lenders that you are struggling with your finances. 
• Before making another application, take some steps to improve your credit history. Check your information with the three main credit reference agencies (Equifax, Experian, and TransUnion) – do you recognise all the credit accounts in there? Is all your personal information accurate?  

If you’re struggling with debt, you can access free financial advice and support from a professional debt specialist. Visit Money Wellness, StepChange, Citizens Advice, National Debtline, or MoneyHelper to find out more.