While there is technically no such thing as a “bad credit loan,” what customers who seek this out are typically looking for is a lender who will consider them, despite a less-than-perfect credit. Though an imperfect credit history can interfere with your access to some types of conventional financing, bad credit loans are available, serving various short-term funding needs.
Searching for a bad credit loan can be something of a minefield, particularly online. There are many companies supposedly offering bad credit loans but there is much information that you will need to read and digest before committing to both the application and the small print prior to accepting the loan.
What is a Credit File and how is it different to a credit report?
A credit file is a database which contains your personal and financial details obtained from loan providers, credit card providers, banks and other services that lend money or credit. Typically, the Credit File will include:
Personal Details in Full Name, Date of Birth, Current Address, Place of Employment and gender.
Account Information including a breakdown of your credit accounts (loans, credit cards etc) and the balances. When they were opened or closed; How much activity there was each month; Payment history and whether any payments are or were overdue or missed.
Credit Inquiries which include credit applications that you have made in the last two years. Keep in mind, credit inquiries come in two forms: a hard inquiry and a soft inquiry. A hard inquiry is made by financial institutions when making a decisions on lending. This will leave a mark on your credit report for up to two years and can affect your credit score. A soft inquiry is not linked to any application and does not affect your credit score.
Defaults and other black marks including defaulting on debts and declaring bankruptcy.
Past and current employers are also listed on your credit file.
Bad credit does not automatically have to be a barrier to receiving a loan and you do not need to be a home owner to apply. Bad credit can be very frustrating, but we will do our best to help. Your personal circumstances and life situations can change and sometimes this can happen very quickly and sometimes they are even out of your control.
The reasons for applying for a bad credit loan are many. You may be in arrears with some repayments; you may have picked up a CCJ (County Court Judgement), or may have other factors on your credit file that will impact on your ability to apply successfully for a normal high street loan. Many people in the UK have a less than perfect credit score and this does not carry the stigma that it did many years ago. Having a poor credit score should not necessarily prevent a person from getting short term loan when they need them. With many direct lenders now agreeing with us, there is currently a great selection of loans for people with poor credit in the UK. For that reason, along with the financial crisis of ten years ago and the poor economic conditions, lenders have had to adapt their borrowing criteria significantly to be able to offer bad credit loans. Often it simply is not your fault that you have a poor credit history and lenders are now more sympathetic than ever before.
Why a bad credit loan might work for you
The benefits of a bad credit loan can include:
A way of borrowing money: if you have a bad credit score and you have been refused credit in the past then a bad credit loan can be a way for you to borrow money
Rebuild your credit score: a poor credit loan can help to rebuild your credit score and credit history if you meet your monthly repayments
Quick access to your loan money: your loan will usually be paid into your account within days of your application being approved – and sometimes even immediately. You can make your purchase or consolidate your debts quickly
Repay over a longer period of time: you will be able to choose how long you want to be paying your loan back for, from one to five years to longer What can you use a bad credit loan for?
If you are approved for a bad credit loan then you can use it just like any other personal loan to help you pay for larger expenses up front. So you might use a bad credit loan for a variety of reasons i.e. to finance a car, wedding, holiday, home improvements, education fees or for another reason.
A bad credit loan can also be used to consolidate any debts you have into one monthly repayment and potentially lower the interest you are paying on the debt as a whole. But you will need to make sure you would still be able to afford the monthly repayments with the new loan deal.
According to the most recent data, car loans are the most common loan which people aged 18-24 and 45-64 search for. Home loans are the most common loan searched by people aged 65-74 and aged 75+. Debt consolidation loans are the most commonly searched for loan for 25-44 year-olds.
How do you get a loan with bad credit?
If you have been refused a credit card or loan in the past, this will appear on your credit report as a search and could affect your credit score. If you have found it difficult to repay money that you have borrowed in the past, this can also appear on your credit report as a default. This could also affect your credit score. A low credit score and marks on your credit report can make it harder to find a loan.
There are a types of loan that you might find easier to get approval if you have a bad credit history.
Applying for a bad credit loan
Applying for a bad credit loan is simple. Personal details such as name, address, date of birth along with housing and work status are essential. The bad credit loan application will also require expenditure and income details to assess affordability of the loan. When a lender receives your application for a loan or other credit product they approach at least one of the three major UK credit reference agencies – Equifax, Experian or Callcredit – in order to assess your credit file. These credit reference agencies hold data for every UK borrower which is gathered from the electoral-roll information, court records, address details and account data. The score is then calculated based on this information.
Once these basic details have been submitted the loan company will make an assessment of your suitability and ability to pay back the bad credit loan. Some lenders may want the loan secured on your property, others may offer an unsecured bad credit loan.
Every time you make an application for a credit product it goes onto your credit file for a year. Therefore, it is sensible to plan ahead and prioritise credit rather than rushing into yet another credit application. Too many credit applications submitted over a short period of time can result in rejection as it appears you are desperate to obtain credit.
A borrower with bad credit history could consider personal loans instead of credit cards and payday loans. A personal loan may allow for a more manageable stream of payments and sometimes a lower overall interest rate. Other major benefit of a personal loan is that the lender should report the borrowers payment history to credit agencies. This could help the client build a better credit rating when payments are made on schedule. A potential borrower should always check to make sure the lender reports information to credit agencie, including which agencies.
An unsecured loan isn’t secured against any of your assets. An unsecured personal loan for bad credit enables you borrow money without needing to use your property as security for what you intend to borrow. It is the opposite of a secured loan, which you might take out against the value of your property or car. However it is important to that that this type of borrowing is often more expensive because lenders view it as a higher risk. However, they are more easily available and are often quicker to put in place.
Guarantor loans need someone else to commit to being a ‘guarantor’ by agreeing to cover your loan payments if you should miss them and can offer lower interest rates.
Finally, a personal loan repayment schedule may prevent you from falling into worse credit. Personal loans have equal monthly payments and a definite end date to the schedule. On the other hand, a credit card debt can hang over you forever if you only make minimum payments. If you have a large credit card debt and you are not paying off fully every month, you should consider consolidating with a personal loan. The structured nature of personal loans can better assist the borrower to develop a budget and stick with it.
(Allow you to borrow from individuals instead of a bank)
A peer-to-peer loan is borrowed from an individual lender rather than through the usual bank or building society. You will be matched with individuals who are prepared to let you borrow from them.
You might find you can borrow more money than a bank or building society will usually offer you. Interest rates offered on peer-to-peer loans can usually be lower than those of banks or building societies as well.
The average personal loan amount for those aged between 25 and 44 is £12,092 (according to latest data).
You will still need to pass a credit check and the peer-to-peer’s own background checks to be approved.
There are lenders that will provide loans to clients that have bad credit registered such as missed payments, defaults and county court judgements. We work with lenders that provide homeowner loans and these bad credit loans would be secured against your property.
The lenders we work with provide secured bad credit loans and as the loan is secured against an asset such as your home the lenders can provide loans that range from £15,000+. The amount you can borrow will depend upon your affordability and the equity you have in your property.