You may be thinking about getting a loan to help with an unexpected financial emergency, such as an unusually high utility bill, or your car suddenly breaking down, but may be put off from doing so, due to having a bad credit history.
It is commonly understood that a bad credit history can affect your chances of getting approved for a loan. But don’t make the mistake of thinking it is not possible for you to apply for a loan if your score is less than perfect. There are a variety of loans available that are specifically designed for those struggling with poor credit. We take a look at some of the main categories of loans you can get.
What is a bad credit loan?
A bad credit loan is aimed at people who have a bad credit history, or potentially no credit history at all. They are not always provided by the main banks and building societies, and then can have higher interest rates than standard, due to the level of risk posed to them in lending money to you.
Types of loans for bad credit histories
This is a type of unsecured loan available to those with poor credit. Whilst they work in a similar way to your average loan, in the sense that you will need to make loan repayments, it works differently in another way: in order to be approved for the loan, you will need to have a suitable person to act as the guarantor for it. If you fail to make repayments on the loan, the guarantor you have nominated will be legally required to make the payments for you.
In most cases, you can borrow £1,000 to £10,000 in total, with payments split evenly each month. There is usually flexibility in terms of your repayment plan: with the option to choose to pay it back over a period between one and five years.
If you would prefer to not use a guarantor involved in your loan agreement, see no guarantor loans.
Peer to peer loans
Another potentially viable option if you have a poor credit history is a peer to peer loans. This will mean that you borrow money from other investors, as opposed to a loan from a traditional lender. The amount you can borrow is usually quite flexible: up to £35,000 with most loan providers, and you may also be able to apply for business finance of up to £5 million.
In terms of repayment, you will owe money to a number of savers who have invested in the peer-to-peer platform, but the money you pay back will be only in the form of one payment.
Furthermore, rates for peer-to-peer loans tend to be more competitive than you would find elsewhere including low rates from Zopa, Ratesetter and Fund Ourselves.
If you have a poor credit score due to a bad credit history, you could also potentially look at getting a secured loan, providing that you have assets. In this case, a loan is approved providing that you put an asset (such as equity in a property or in a car) that acts as security against the loan. It can often be the case that you can borrow more than other types of lending but it comes with greater risk: the lender has the right to repossess the assets if you default on your payments.