1. Personal loan
Personal loans - also known as unsecured loans - are available to anyone over the age of 18, without having to secure the loan against anything you own such as a car or house.
Some lenders don’t offer loans to people with bad credit due to the risk involved in getting the money back, but that’s not the case with all. There are lenders out there who specialise in helping those with a less-than-ideal track record.
While you should be able to find a personal loan, your credit history will likely restrict the amount you can borrow and could also mean you pay a higher interest rate. However, a personal loan can actually help improve your credit score over time, if you make your payments on time, in full each month. Remember, missing a payment or paying late can harm your score.
2. Secured Loan
If you’re a homeowner and have equity in your property then a secured loan is an option for you. A secured loan is tied to your home, so the risk for the lender lessens, as they can repossess your property in the event of you defaulting. 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. For this reason, they can also be a good choice if you are looking to consolidate your existing debts or for something big like covering home improvements.
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 is 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.
4. Bad credit credit cards
Like loans, there are lenders that specialise in offering credit cards to those with bad credit. These will usually have lower credit limits and charge higher rates of interest, the Ocean Credit Card is one example.
Because credit cards offer a grace period on purchases, bad credit credit cards are often a good option for repairing the damage done in the past. This is providing you pay your balance in full on time, every time. They enable you to build a positive credit history and avoid paying interest.
You’re not required to pay the balance in full every month, only the minimum payment, but anything you don’t pay off will accumulate interest, so if you can, it’s best to pay off in full each month.
5. Ask family and friends
Is there someone close to you who can lend you money? If you are struggling financially and friends or family are prepared to help, then they may be able to provide you with a solution that doesn’t cost you a huge amount in interest and/or fees.
Another benefit is that you won’t need a formal agreement or to pass a credit check. However convincing someone to lend you money might be difficult, and while your credit report will be unscathed should you not pay it back, your relationship with them likely won’t be.
If you are planning to go down this route, it’s advisable you set clear expectations about repayment and treat it in much the same way as any other debt. Prior to asking someone, it’s also wise to put yourself in their situation.
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6. 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, and the interest rates for their loans tend to be quite low.
Credit unions select their members around certain specific communities, which can be on occupation, where you live and other factors. You can find out what credit unions you are eligible for here.
What happens if I am rejected?
If you’ve got a poor credit history you are less likely to be accepted for a lot of lending options. To make sure your credit score doesn’t get any worse, always use soft search facilities or eligibility checkers when you apply.
Every hard check stays on your record for at least twelve months and multiple searches can suggest to lenders that you are struggling with your finances. This impression will be compounded by your negative credit history.
If you cannot utilise any of these options, you will need to work hard on your credit score to improve your chances in the future. Our credit score improving guide outlines some of the best ways to do this. Remember even the most serious of financial mistakes disappear with time.
If you are in urgent need of credit because you cannot meet your monthly repayments, 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 and Citizen’s Advice. They can talk you through a number of alternative options such as debt management plans.