Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk/en
At times pretty much all of us find ourselves in need of extra cash, whether it’s to cover a sudden, unforeseen expense or pay for a new home appliance.
But if your credit score is less than ideal, then your choice of loans may be limited.
If this sounds familiar, don’t panic. It doesn't need to become a major headache, because there are lending options out there for almost everyone – including loans that are designed specifically for people with poor credit scores.
So, let's take a quick look at how to get a loan with bad credit, and how to check if this really is the right option for you.
Whenever you apply to borrow money (either as a loan, credit card or credit agreement) the lender will check your credit report before agreeing to lend to you.
Also known as a credit file, a credit report is an important record of your previous borrowing activity. It lets lenders know how much money you’ve borrowed in the past, if and when you paid it back and whether you were on time with your payments.
All of this data is calculated into what is known as your ‘credit score’, which is expressed as a number. The higher the number of your credit score, the more reliable you are considered to be as a borrower.
If you have ‘bad’ credit, this means that you may have struggled to pay back a loan or bill in the past and a lender has left a marker on your credit report.
This will be reflected in your score, and some of the main reasons for this include:
If any of these issues apply to you, you’re less likely to be accepted for a 'mainstream' loan.
Applying for a loan might actually be the first time that you discover you have a low credit score or other problems related to your credit history.
Also, if you’ve never applied for a loan before, your credit score might not meet some lenders' requirements. This because there is no proof to lenders from previous borrowing behaviour that you’ll repay on time.
Learn how to check and improve your credit score here.
Bad credit loans are specifically designed for people with a limited or poor credit history.
Lenders offering bad credit loans will usually only offer higher rates of interest, because in their eyes they’re taking on a bigger risk by lending to you.
This means that loans for bad credit are often an expensive way to borrow money.
In some circumstances it may make more sense to talk to a credit union about arranging a loan, or instead consider a debt consolidation loan if you’re trying to manage your debt.
There are two types of bad credit loans - unsecured or secured.
Secured loans use a valuable possession that you own (most usually your house or car) as collateral against the debt.
This means if you fail to make your monthly repayments, the lender could ultimately take whatever is secured against it - even if it's your home.
Unsecured loans don't require any collateral, so the only guarantee a lender really has that you'll make all the repayments is your credit score and your previous track record with debt.
For that reason, unsecured products such as personal loans, bad credit loans, credit cards and payday loans all come with higher interest rates as they're considered higher risk for lenders.
So if you do take out a bad credit loan, it's best to try and pay it back as soon as possible to avoid expensive interest rates.
It’s easy to check your eligibility for loans for bad credit online - and just as easy to apply.
Some online lenders may approve you quickly, often within minutes or hours. However, most people with poor credit history will be checked more closely – and this can take a little longer.
If you do apply for a poor credit loan but are rejected by one lender, don't then immediately apply for similar products with other providers.
You could damage your credit score further and make it harder for you to be accepted by a lender.
The more applications you make in a short space of time, the more it could harm your credit rating.
Some providers and comparison sites offer a 'soft search' (or quotation search) function that allows you to check how likely you would be to get a loan before you officially apply.
These kinds of 'soft' checks don’t damage your credit score or waste your time.
It's a general rule with an unsecured loan that the lower your credit score, the higher the interest rate you'll pay and the less you'll be able to borrow.
Higher interest rates mean that the loan will be more expensive overall, so you need to make sure that the monthly payments are affordable within your budget.
It's also worth pointing out that if you're approved for a loan for bad credit and make all your payments on time and in full, it could boost your credit rating.
But if you fail to repay a bad credit loan on time it will have a negative impact on your credit score – and the consequences are more serious than failing to repay a standard loan.
It could damage your chances of borrowing from responsible lenders again in future.
You'll know by now that people with higher credit scores are able to find better interest rates and offers on loans. But if your credit history needs a bit of work, the good news is that you can quickly and easily start the work of boosting your credit score to get on the right track for a cheaper personal loan in future.
Meeting all your repayment obligations on time every month should improve your credit score for future applications. This includes mobile phone bills and utility bills.
Starting Direct Debits and always having money in your account to cover the payments will show lenders and credit agencies that you can pay on time.
Being refused a loan and mounting debts can cause stress and other mental health problems. But don’t worry, there are a number of and organisations that can help you manage your debt.
Money Helper can arrange for you to speak with a debt advisor online or face-to-face. Their debt advisor locator tool will help you find an advisor for free.
You can get free advice from Citizens Advice, who have plenty of information surrounding debt and money which is available free to everyone.
StepChange offer free online debt advice and can advise you on managing your debts and managing your finances to avoid further debt.
PayPlan is one of the UK’s largest free debt advice providers and help more than 100,000 people every year. They partner with providers like Dot Dot Loans to offer a bespoke and accountable free debt advice service.
You should always think carefully before you take out a loan, but if your circumstances are less than perfect and you're considering a loan, it's possible that Dot Dot may be able to help.
A bad credit loan could help you with unexpected expenses and situations, but remember our loans aren’t right for everyone, and you should only borrow what you can afford to pay back.
Take a look at our FAQs to find out if a Dot Dot loan is right for you.
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