How to borrow money with bad credit

Can you borrow money with bad credit?

Yes — you may still be able to borrow money, even with bad credit.

There are lenders 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. To give you an idea of the difference, the average APR on a bad credit loan is around 40%, compared to as low as 7% on a standard personal loan. It's worth shopping around and comparing options before you apply, as rates can vary significantly between lenders.

However, repaying what you borrow on time and in full each month may help improve your credit score and get you a better deal next time you apply.

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 harder to get credit again in the future.

Ways to borrow money with bad credit

There are several routes worth considering, depending on your circumstances. Here's a breakdown of the most common options.

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 loans

A secured loan is a loan that is tied to your property, usually a home (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 if you fail to keep up with repayments. 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.
• Missed payments could put your home at risk, so make sure you can afford the repayments each month before applying.

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.

A guarantor formally guarantees 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 understand that any consequences for missing 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 not-for-profit collectives that offer various forms of financial support to their members, often at lower rates than mainstream or high-street lenders.

Credit unions accept members in accordance with certain criteria, which can vary by occupation, location, and other factors.

6. Budgeting Loans and Budgeting Advances

If you're currently receiving certain benefits, you may be eligible for an interest-free government loan to help cover essential costs like furniture, clothing, or rent in advance.

If you're on Income Support, income-based Jobseeker's Allowance, income-based Employment and Support Allowance, or Pension Credit — and have been for at least six months — you can apply for a Budgeting Loan on GOV.UK.

If you're on Universal Credit, you can't get a Budgeting Loan, but you may be able to apply for a Budgeting Advance instead — the equivalent scheme for Universal Credit claimants. Repayments for both are taken directly from your benefits.

What to avoid when borrowing with bad credit

When you have bad credit, it can be tempting to turn to lenders offering quick or guaranteed approval. Be cautious of high-cost short-term credit, sometimes called payday loans. These typically come with very high interest rates and can make it difficult to keep up with repayments, potentially worsening your financial situation.

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 they typically only impact your credit score for twelve months.
• Try to wait 3–6 months before making another 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 listed? 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.