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A Guide to Bad Credit Loans

Finding a loan when your credit is bad, isn’t easy. Luckily, we’ve got all the information you need to know about bad credit loans!

Your credit score is something that will hang over you forever. It’s the thing that follows you around and determines whether you qualify for financial products such as loans, credit cards and mortgages and more. If you credit score is good, you’re probably in the wrong place… This post is all about bad credit loans.

If you’re looking to learn all about bad credit loans, you’re in the right place. For those with bad credit, it may feel like an impossible task trying to find the right loan. We’ve got all the information you need about bad credit loans. Everything from what they are, as well as the pros and cons of them. Are you ready to learn all about them?

What is credit?

For those that aren’t quite sure what their digitised credit score means, we’re going to break it down for you in this section. Your credit score is essentially your financial footprint, more importantly it’s how lenders assess your reliability as a borrower. Credit is a digitised record of your financial history – it’s made up of every bill paid, every loan taken out and every credit card or other financial product you have had.

Set by three main credit agencies in the UK, being Equifax, Experian and CallCredit, credit scores vary, as each agency has different scales. Experian score out of a total of 999, whilst Equifax have a scale up to 700. Call credit goes for the simpler one and gives you a score out of 5. Your credit score can be checked for free on websites like ClearScore, Noddle and MSE.

If you want to qualify for good rates on credit cards, loans and mortgages – and want to be approved, you’re going to need a ‘good’ credit score. Whilst every lender is different, each agency determines their score on different scales. For Equifax it’s 420/700, Experian is 880/999 and finally CallCredit is 4/5.

Why care about credit if there are bad credit loans?

Okay, so it might be strange talking about having good credit on a post about bad credit loans, but there’s actually some key advantages to having a good credit score. Typically, bad credit loans are more costly, and have a higher APR than other loan options. Because, if your credit is bad, your reliability as a lender is less established, which means you’re a higher risk investment than someone with good credit. Typically, lenders will ask you to provide a guarantor to support your application (guarantor loan) or have extremely high interest rates (payday loans).

For those that take out a bad credit loan, it’s usually because their credit is bad (obviously), and because they’re unable to qualify for a loan from other high-street lenders or banks. Whilst it may seem like credit isn’t relevant if there’s bad credit lending options, it can impact the variety of your lending options in the future. For starters, it will make getting a mortgage a lot more difficult, as well as getting a good rate on loans and credit cards. However, some bad credit loans can help rebuild your credit score over time.

Bad Credit Loan Options

When looking into bad credit lending options, there a few types of loans out there, available to you. We’re going to look at them, in this section.

  1. Personal Homeowner Loans

Some bad credit loans are specifically for homeowners only. Whether these be secure or unsecure loans, you will have to be a homeowner in order to apply. A secure loan is one that has something up as collateral against the loan, typically your property, because this means the lenders investment is secure. Unsecure loans are the opposite, and don’t require you to put anything up against the loan. Personal homeowner loans vary from lender to lender, and some are unsecure, and some are secure – it’s dependent on the lender. However, you will need to be a homeowner in order to qualify for this bad credit lending option.

  1. Guarantor Loans

Guarantor loans require you to bring forth a guarantor with your application, in order to make sure lending to you in a ‘safe’ option. Because bad credit options usually don’t rely on your credit score as a deciding factor, guarantor loans mean that applicants need to have someone with good credit to back their loan request. They’ll agree to cover any repayments the borrower is unable to make, as well as co-signing all the paperwork too. This allows guarantor loan providers to make sure their investment is secure.

  1. Payday Loans

Another type of bad credit loan are payday loans. These are usually for smaller amounts, typically between £100 – £1,000. Payday loans have an extremely high APR, if they’re not repaid in a timely manner. Monthly repayments stack up to make these loans very high. However, if you can repay the loan within the suggested window, the interest isn’t too bad. Payday loans don’t usually require a credit check and are fast – but not ideal for those seeking a larger loan.

Interest Rates

Because your credit score is an indicator for your reliability as a borrower, bad credit lenders usually have high interest rates (higher than banks and high-street lenders). Whilst you may be tempted to find a high-street lender or bank with a better interest rate, it’s unlikely they’ll accept you if your credit rating is low. That’s why bad credit lenders are usually the only alternative for those with bad credit, looking to borrow money.

Some bad credit loans can help rebuild your credit score over time, meaning they can improve your credit score for the future – if repaid on time month on month. This will expand your financial borrowing opportunities in the future, and means you can get better rates on loans, credit cards and more.

Whilst good credit is hard to achieve, getting there eventually is beneficial for your financial future. For the meantime, you may have to look into bad credit lending options. Just make sure you can afford the loan, as taking out one you cannot afford to repay can cause serious money problems.