Pros and cons of bad credit loans

Bad credit loans help those with a poor credit history to get finance. You can access bad credit loan to rebuild your credit history. Make sure you can afford to maintain your repayments over the whole term, as high interest rates may apply.

4 min read
advantages and disadvantages of a loan


 1. Quick response

Bad credit personal loans are usually available online. So depending on the lender, the money could be in your bank account in as little as 15 minutes.

2. Can be used for any purpose

As long as the loan isn’t for gambling or anything illegal, you can spend it on anything you like. Common reasons for taking out a loan include home improvements, debt consolidation or high-value purchases like a new car.

3. Repair your credit history

The best way to repair your credit score is to slowly build up a good credit history. Bad credit loans can help you to do this by repaying your loan on time, every time to show that you are a responsible borrower - this should improve your credit score over time.

4. More likely to be accepted

Your options are more limited when you have a bad credit history, but there are lenders and brokers, like ourselves, who specialise in bad credit loans.

There’s no guarantee of acceptance, but if you have a poor credit history you should have more chance of getting a bad credit loan compared to a mainstream one.

Check your eligibility for a loan for bad credit and see if you're eligible in 60 seconds - without affecting your credit score.

Check your eligibility for a bad credit loan from £1,000 to £500,000

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We're a credit broker not a lender. Homeowner loans are secured against your home.


1. High-interest rates

Lenders tend to apply higher interest rates if you have a poor credit history. They do this to offset the risk they’re taking. The lower your credit score, the more interest you may be charged, making the cost of borrowing more expensive. So you should always assess if you can afford the loan repayments before you enter an agreement.

2. Fixed repayment terms

Unlike credit cards, the amount you repay each month towards a personal loan is a set amount, agreed with your lender at the start of your contract. It’s important you can afford the repayments for the full duration of the loan. Otherwise, missed payments can negatively affect your credit score and put you in financial difficulty.

3. Replacing one debt with another

If you take out a new loan to pay off an old one, you will still have an outstanding balance at the end of the day. If you are struggling to maintain your loan repayments, you could get in touch with a charity like Citizen’s Advice or StepChange for free debt advice.

How to apply for a bad credit loan

  • Calculate how much you need to borrow
  • Decide how long you want to take out the loan for
  • Work out how much you can afford to pay back each month
  • Shop around to find bad credit loan providers
  • Use an eligibility checker before you apply to make sure you meet the lender’s criteria, without affecting your credit score
  • Once you’ve found the best deal, follow the full application process with that lender

Tip: Remember not to make too many applications in a short space of time, as this can make you look like you are struggling financially, which could put lenders off. 

Do I have any other options?

Improve your credit score

If you aren’t eligible for a bad credit loan or you want to get a better deal in the future, you could work on repairing your credit history to boost your chances. Check out our ultimate credit score improving guide for some tips on how to go about this.

Or perhaps you are looking for an alternative to a loan. If so, you could consider the following:

1. Credit builder card

One way to improve your credit score could be to get a credit card for bad credit. If you maintain your payments on time every time, then you can rebuild your credit history.

These cards are suitable if you are looking to borrow small amounts. They often come with high rates of interest, due to the risk associated with lending to someone with bad credit. But you have a higher chance of being accepted for one of these cards than a mainstream card if you have a poor credit history.

 2. Secured loan

If you are a homeowner looking to borrow a large amount of money (over £10,000) you could check if you’re eligible for a secured loan. Unlike personal loans, secured loans are attached to your property. This gives lenders the reassurance they need to be able to lend larger amounts of money with lower interest rates - despite your bad credit history.

That said, each lender uses their own criteria and there’s no guarantee of acceptance. Your home could be at risk repossession if you don’t keep up with the repayments.

3. Guarantor loan

An alternative could be to get a guarantor loan, which is designed for people with poor credit. This means that someone you trust signs the loan agreement to ‘guarantee’ your payments in the event that you cannot pay.

Each lender uses their own criteria, but they will usually check that your guarantor has a good credit score, to offset the risk. Both you and your guarantor need to be fully aware of the financial implications of entering such an agreement before you go ahead, as you will both be liable for the debt.

4. Budgeting loan

Budgeting loans are provided by the government. They’re designed to help people who are struggling to pay for essentials (like rent or funeral costs). To be eligible, you must receive certain benefits for at least six months before you apply.

For more information see the government website.

5. Credit union loan

You could look into becoming a part of a credit union where all members pool their savings together. You can then take out a loan using these funds, usually for a small amount with low-interest rates.

Members must share a common bond, for example, they may live in the same area or work for the same employer. You can find your nearest credit union here.

6. Free debt advice

If you are in financial difficulty, consider getting in touch with a charity like Citizen’s Advice or StepChange for free, non-judgemental debt advice.

Intelligent Lending Ltd is credit broker, working with a panel of lenders. Homeowner loans are secured against your home.

Disclaimer: All information and links are correct at the time of publishing.