Can you get a loan with bad credit?
Yes, you can still be accepted for a loan even if you have bad credit – but it’s likely to be more of a challenge, and you might find that your options might be limited. It’s worth noting that bad credit loans usually carry higher interest rates than regular loans too.
1. Personal loan
Personal loans - also known as unsecured loans - are a popular option as the loan isn’t secured against something you own such as your home or car, but they can also be more difficult to get accepted for if your credit is poor
There are lenders around who specialise in helping those with a less-than-ideal credit history, so be sure to shop around before making an application. Many comparison sites offer the chance to see what you may be eligible for before you make a full application, often without leaving a full footprint on your credit file that other lenders can see.
You might find that your credit history restricts the amount you can borrow and could also mean you pay a higher interest rate. However, a personal loan may help improve your credit score over time, so long as you make your payments on time, in full each month.
Remember, missing a payment or paying late can seriously harm your score and can result in extra fees and charges being applied, which could make it harder to get credit again
2. Secured Loan
If you’re a homeowner and have equity in your property, then a secured loan may be an option for you. A secured loan is tied to your home, so the risk for the lender is often seen as less, 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 be with a personal loan.
Secured loans generally offer longer timescales to pay the money back and you can often borrow larger sums of money, providing you have enough equity in your property to cover the amount.
It’s important to be sure that you can afford to make the loan repayments each month, as missed payments could put your home at risk.
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. 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 score is also taken into account for the application. They formally guarantee to cover any missed payments on your behalf, meaning the debt is entrusted to them as well as to you.
This means the lender’s risk may be reduced, so you may be more likely to be accepted whatever your credit history, depending on your guarantor passing their respective credit check.
If you are considering this type of loan, it’s important that both you and the guarantor are aware that any consequences for not meeting the payments are shared – so, if you don’t pay, your guarantor could be left with the bill and a damaged credit score!
Other ways to borrow with bad credit
4. Bad credit credit cards
Like loans, there are lenders that specialise in offering credit cards for bad credit. These will usually have lower credit limits and charge higher rates of interest.
Credit Cards can help to repair your credit history if you make your minimum payment on time each month. If you’re in a position to pay your full balance off and you don’t use your card to make any cash withdrawals, it can mean no interest will accrue, meaning you only pay back what you borrowed; although you’re not required to pay the full balance each month. .
Like with loans, the interest rate and credit limit can vary – you can use online resources, such as comparison sites, to check your eligibility.
5. Credit Union
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 select their members by certain specific criteria, which can vary from occupation, and where you live to other factors. You can find out what credit unions you may be eligible for here.
What happens if I am rejected?
If you’ve got a poor credit history, you may find that you are less likely to be accepted for some lending options. There are some things you can do though – making sure you know what your credit score is and what credit is under your name, by checking your information with credit reference agencies, is one way to be prepared.
Every hard check stay can stay on your record for up to two years, although it only typically impacts your credit score for twelve months. Multiple applications close together can suggest to lenders that you are struggling with your finances.
If you are in urgent need of credit because you cannot meet your monthly repayments or feel you need to talk to somebody about the amount you owe, it may be time to seek help. There are a number of charities who offer free and impartial advice on your best plan of action, including Stepchange, the Money and Pensions Service and Citizen’s Advice. They can talk you through a number of alternative options.
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Your credit score could improve if you pay on time and stay within the limit. Not doing so could harm it. Intelligent Lending Ltd (credit broker). Capital One is the exclusive lender.