Best Loans for Bad Credit UK: Risks, Benefits & Approval Process
Bad credit loans are those loans that are aimed at borrowers with a subpar credit history or very little or no credit history at all. These loans charge high interest rates to mitigate the risk of default by you. This blog aims to discuss the benefits, risks and the approval process of these loans.
What is a bad credit loan?
A bad credit loan is a secured or unsecured loan aimed at people with substandard credit scores. Personal loans with bad credit are not pledged against any assets, but bad credit secured loans are. The following are the features of loans with bad credit:
- Since borrowers will see you as a risky borrower, they will charge high interest rates.
- Most lenders restrict the loan amount due to heavy interest payments.
- Affordability checks are run, which include credit report perusal and repayment capacity.
- If paid back on time, these loans can help ameliorate your credit score.
Can you get a loan for bad credit?
Yes, you can get bad credit loans in the UK from direct lenders. However, these loans come with high interest rates. Though lenders factor in your credit score during the loan process, they emphasise your current income and affordability more than your past mistakes. Here is what you should do to qualify for a loan with poor credit:
Check your eligibility
Following the submission of a loan application, your lender will run a credit check. If your credit score is extremely low, there is a chance of being refused. Before applying for a personal or secured loan, you must ensure that lenders accept borrowers with your current credit score. This will lower the chances of being rejected on grounds of credit rating.
By using comparison websites, you can check if you qualify for a loan. If you are looking to borrow a large amount of money, apply for per-qualification letters. Without losing your credit score, you can understand how much money you will be able to borrow, interest rates and repayment terms. Lenders provide per-qualifying terms by running soft inquiries.
Determine your affordability
An online calculator can help you figure out how much per-qualification rates will cost you. Bear in mind that per-qualification letters are not provided when you need a loan for small emergencies. In that case, use a representative APR to calculate the estimated cost of the loan.
Now look at your monthly budget to ensure repayments will not cause further financial strain. You might have to slash inessential expenses to fit repayments in your budget. If you still find that your pocket does not allow for loan repayments, you should try to reduce the borrowing amount.
Actual interest rates may differ from per-qualification rates, as they are determined after a thorough affordability check. Make sure your budget has some breathing space to cover costs that could be higher than the estimates.
How to get a bad credit loan?
Follow the following steps to qualify for a bad credit loan:
Check your credit report
You should check your credit report to watch out for errors. Self-examination of your credit report will not damage your credit score, as it leaves soft search footprints. They are not included in the calculation of your credit score.
Sometimes, a credit score is worse because of identity theft. Check if your credit report has a record of unidentified accounts. In case of errors, lodge a complaint with the FCA. It takes at least a month to resolve the issue.
Research the market
The next step is to research the market to ensure you are borrowing money from a lender who offers the best loans for bad credit in the UK. While comparing deals, focus on the APR, because it determines the actual cost of the loan.
Comparison websites and per-qualification can help you choose the most affordable loan. Check the registration of a lender. The lender you pick should be authorised by the FCA.
Submit a loan application
Once you have picked a lender, fill in the application form and submit it. Your lender will go through your application and perform credit checks. After completing this process, they will let you know whether you are accepted or refused. If approved, you will be informed of the loan amount, interest rates, APRs, and repayment term.
Start repaying your loan
The loan amount will be reflected in your bank account as soon as you sign a loan agreement. Keep making repayments on time. Falling behind on payments will damage your credit score and cost you late payment fees.
How does a loan with bad credit work?
Bad credit borrowers are considered risky, so lenders will carefully evaluate your ability to repay. When you submit your loan application, they will likely know:
- Your monthly income
- Monthly expenses
- The number of dependent
- Additional debt
They might also go through your bank statement to check whether you will be able to repay the debt along with other expenses.
An affordability assessment is not limited to your credit score, but it includes your repayment capacity. Lenders are most likely to approve applications when you demonstrate your repayment capability.
Best loans for bad credit in the UK offered by Bargain Loans
A bad credit loan is not a distinct type of loan product. When subprime borrowers apply for loans, they are referred to as bad credit loans. Bargainloans provides the following types of loans to borrowers with challenged credit histories:
Personal loans
Personal loans are unsecured loans. They help you consolidate your existing outstanding debts and meet large expenses.
Guarantor loans
Guarantor loans are aimed at subprime borrowers who are unable to qualify for the best loans for bad credit with no guarantor due to a high default risk.
These loans require a guarantor with a good credit score, who will be responsible for repaying the debt if you default.
Instalment loans
Instalment loans can be secured and unsecured. They are paid back over an extended period of time. Since you pay down the whole debt over a period of months, you will find it more manageable than a small emergency loan.
12-month loans
12-month loans are unsecured loans. The repayment term of these loans lasts for a year. You can use these loans to cover medical bills, wedding expenses and home renovation costs.
1,000-pound loans
£1,000 loans help borrowers tide over during financial emergencies. Since the loan amount is small, they are required to be repaid in one fell swoop on the due date.
Loans on benefits
Loans on benefits are targeted at unemployed people who are between jobs. They can help you cover small emergencies, but you still need to prove your repayment capacity. Passive income and benefits improve your chances of being qualified for these loans.
Required eligibility for best loans with bad credit
You will need to meet the following criteria:
- The minimum age to apply for a loan with poor credit is 18.
- You must have an active bank account to receive and repay the loan amount.
- For large loans, you will need collateral, which is generally your house.
- You must have proof of regular and stable income.
What are the Benefits of bad credit loans?
The following are the benefits of bad credit loans in the UK:
Access to funds
The biggest benefit of these loans is that you can access loans even if banks refuse. There are some mainstream lenders that specialise in providing loans to bad credit borrowers as well. They are especially helpful when you need money during small emergencies.
Quick approval
Very bad credit loans are approved quickly, especially if the loan amount is small. This is because the lending decision is made based on your current income sources rather than credit score.
Credit score building
Loans with bad credit enable you to ameliorate your credit score. If you repay the whole debt on time, this will be recorded in your credit file. Lenders inform credit reference agencies of timely payments and missed or late payments. The settlement of the debt on time will help fix your credit rating.
Debt consolidation
If you are struggling with multiple debts, you can consider applying for a personal loan to consolidate your existing debts. However, not all lenders will accept consolidation requests from subprime borrowers.
What is the risk of borrowing money with bad credit from lenders?
Though loans with poor credit have benefits, they are subject to certain risks as well:
High interest rates
Interest rates will be high as lenders will perceive you as a risky borrower. They could be even higher if you are looking for extremely bad credit loans in the UK. APRs for these loans may range between 49.9% and 1200%.
The risk of a debt spiral
High interest rates can make it challenging for you to keep up with repayment dates. Once you miss a repayment, late payment charges will be levied, elevating the total due amount. Over time, the pressure of mounting debt will be so intense that you will find yourself in an abyss of debt.
The loss of collateral
If you take out a bad credit secured loan, you might end up losing your property in case of default. Secured loans with bad credit are considered riskier than unsecured loans despite lower interest rates, as non-payment can result in collateral loss.
Credit score damage
Your credit score will be ruined if you fail to repay the debt on time. This will hamper your ability to borrow money at lower interest rates down the line.
How long does it take to process your loan application?
Loans for emergencies take little time to complete the process. For initial-stage approval, lenders rely on their algorithms. Millions of applications are shortlisted in minutes based on the financial information borrowers provide. Those who qualify for an initial-stage screening undergo an affordability assessment.
This entire process takes a few hours to complete. Once it is done, it takes a couple of minutes for funds to be reflected in your account.
However, if you are looking to borrow a large personal loan or secured loan, the application process includes extensive affordability checks, and therefore it might take a couple of days to complete the process.
What are repayment terms for loans for people with bad credit?
Repayment terms for bad credit loans vary by loan amount.
If the loan amount is between £100 and £1,000, you will have to repay the whole debt in full on the due date. The repayment term for these small emergency loans is not beyond a month.
If you borrow more than £1,000, the loan repayment term will vary between three months and five years.
Can I expect low interest rates with bad credit?
It is extremely difficult that you will be able to qualify for low interest rates with a poor credit score. Though lenders emphasise your current income source more than your past mistakes, they cannot rule out the fact that you missed payments on time.
If you still want to improve your chances of qualifying for competitive interest rates, practise the following tips:
- Ensure that your credit report does not have a CCJ (County Court judgement).
- Your debt-to-income ratio is lower than 30%.
- You should avoid too much reliance on small emergency loans.
How can I inquire about fees for loans with low credit scores?
There are various types of fees that lenders charge, and they vary by lender. Some lenders charge administrative fees while others do not. Contact the lender’s customer service to know about the fee structure. However, you may only be able to obtain details of the fee breakdown in the loan agreement.
Can I get guaranteed loan approval with bad credit?
Guaranteed approval does not exist. No authorised lender can offer guaranteed approval. If you find any lender offering these terms, they could be loan sharks. They might trap you into a debt spiral.
A responsible lender will always perform credit checks, which is not possible unless you formally put in a loan application. They will also assess your current financial condition. If they find that you cannot repay the debt, they will certainly refuse you.
What is the difference between bad credit and very bad credit?
| Aspects | Bad credit loans | Very bad credit loans |
| Causes | Missed or late payments | CCJs, bankruptcies |
| Lon amount | Starts from £1,000 | Not more than £1,000 |
| Interest rates | Ranging between 24.9% and 99.9% | Starts from 99.9% |
| Repayment terms | Between 3 months and 5 years | Up to a month |
| Approval chances | Moderate | Low |
How to compare APR and fees for bad credit loans from UK lenders
It is hard to know the actual APRs and fees without formally applying for a loan, but there are ways to establish a comparison to get the most affordable deal.
Use comparison websites
Comparison websites will let you know the representative APRs offered by different lenders. Actual rates will be provided only after a thorough application assessment, but it will give you an idea of whether you can meet the estimated loan cost.
Obtain qualifying letters
If you are looking to borrow a large sum of money, you should apply for qualifying letters from different lenders. They will quote APRs by running soft checks, which do not lower your credit score. qualifying letters will help you choose the most affordable lender. However, actual interest rates and repayment terms are decided after performing hard checks.
The bottom line
Bad credit loans in the UK are available from various lenders, but they are expensive. You should carefully determine your affordability before using these loans. If you need money and are looking for competitive interest rates, borrow money from Bargain Loans.
FAQs
– Can I get a loan for bad credit without a broker?
Yes, you can get a loan for bad credit without a broker. Apply directly to a lender. Research a lender from whom you want to borrow money, go to their website, fill out and submit the application form. If approved, you will receive money in your bank account.
– Is it possible to borrow a loan with extremely bad credit?
Yes, you can borrow money despite an extremely bad credit rating, but the loan amount will be restricted, and high interest rates will be charged.
– Can I get a loan without a guarantor with poor credit?
Yes, you can obtain a non-guarantor loan even if your credit history is compromised. Interest rates, though, will be high.
Paul Smith is an established financial author and writer with over nine years of experience, who specialises in personal finance, loans, credit management, and investment strategies for people throughout the UK. Paul’s expertise can be seen on leading loan websites such as Bargainloans. Through his blogs and articles Paul has helped thousands of borrowers make wiser financial decisions while his passion for study encourages people to take control of their finances with greater confidence and clarity
