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Borrowing with bad credit

How to get a loan with a poor credit score

published: 06 July 2022
Read time: 5 minutes

You could still get a loan if you have a low credit score. Our guide explains how to improve your chances of getting approved

Can you get a loan with bad credit?

If you have a poor credit rating it can be difficult to get a loan – and at reasonable or affordable interest rates. But there are specialist lenders who offer loans to those who have struggled with credit in the past.  

Known as bad credit loans, these loans will usually charge a higher interest rate than standard personal loans. This is because lenders are taking a higher risk by providing funds to those potentially more likely to default. 

If you have a poor credit score but you need a loan it is worth looking at specialist bad credit loan providers to see if they can help – and whether or not you’re eligible. In some cases if you have very bad credit you may find you won’t be accepted for a loan, but it may still be worth checking – and as searching with us won’t affect your credit score in any way, you don’t have to worry about harming your credit rating any further. 

How to get a bank loan with bad credit

Check your credit rating: It’s worth keeping an eye on your credit score regularly to make sure it’s as high as possible. Our guide gives you tips on how you can improve it. 

Decide on the type of loan: You can opt for a personalsecured or guarantor loan to borrow the money you need. You don’t need to put down security for a personal loan, but you might need to pay more interest and may not be able to borrow as much. A secured loan involves putting down a valuable item to act as security, such as your home or car. This is in case you default on your repayments. A guarantor loan is a way of borrowing where a close friend or family member agrees to step in if you cannot make repayments.  

Compare loans: When you use MoneySuperMarket, we’ll compare loans from our leading panel of lenders to show you the most suitable deals. We’ll ask you a few questions and conduct a ‘soft search’ which won’t leave a mark on your credit report.  Then we’ll show you loan deals based on how much you wish to borrow – highlighting the ones with the best rates and terms. We’ll also show you your chances of being accepted and any deals you’re pre-approved for. 

Apply for a deal: Once you’ve made your choice, click through to the loan provider to apply. They’ll then make a final decision as to whether to accept your loan application on the agreed terms. 

Receive the money: If your application is accepted, you’ll receive your money – usually within a couple of days. You then start to pay back the loan and interest in monthly instalments until it has been paid off in full.

What types of loan might I be offered with bad credit?

Unsecured personal loan

Unsecured personal loans are not secured against any assets (such as your home). Instead, lenders will base their decision on your personal loan application based on your credit history and score – and how well you’ve managed credit in the past. 

If you’re unable to meet your loan repayments in the future, the lender may arrange a County Court Judgement against you.  

Secured loan

Secured loans require you to use an asset as security against your borrowing – typically your home or other valuable asset. This acts as collateral to the lender in case you can’t keep up with your monthly repayments. 

Although you may be able to get a better rate and borrow more with a secured loan you should think carefully before you apply, as you could lose your home if you fail to keep up with repayments. 

Guarantor loan

With a guarantor loan the borrower must arrange for a second person – the guarantor - to agree to be legally responsible for the loan repayments in the event the original borrower cannot repay. This lowers the risk to the lender, particularly when lending to someone with a poor credit rating.  

The guarantor, usually a friend or family member of the borrower, will have to qualify to be eligible, meeting criteria such as being aged 21 or over, working full-time and having a strong credit history - and also potentially being a homeowner. The guarantor can’t be your spouse or someone you share your bank account with. 

A guarantor loan may enable you to borrow when you have poor credit, but think carefully about the arrangement first. It could damage your relationship with the guarantor if you start missing repayments and they have to step in. 

Peer to peer loan

Peer to peer loans are a way to borrow money without using a bank, building society or traditional lender. Instead you’re borrowing your loan from an individual or group of individuals rather than from a financial institution, such as a bank.  

It may be possible to get lower interest rates with a peer to peer loan compared to traditional loans, although this will depend on how low your credit score is. In some cases those with very poor credit may not be eligible for this type of loan. You’ll usually have to be at least 18, a UK resident and have a regular income to apply. 

What should I consider before taking out a loan with bad credit?

There are a number of things to think about before taking out a new loan, particularly if you’ve struggled with debts in the past. These might include: 

Do I need the money?

While you may be able to get a loan if you have bad credit, the deal won’t be as good as it would be for those with a good credit rating. This means that even if you pay it back on time and in full, it will be more expensive. If you have the time to work on your credit score first – getting on the electoral roll and meeting existing credit and debt repayments on time and in full, for example, this should start to boost your credit rating making borrowing easier in future. Always be confident and comfortable that you can afford any borrowing before you apply. Getting into difficulties with a new loan could further damage your credit rating, and in the worst cases, with secured debt you could lose your home. 

How much do I need to borrow and for how long?

The more you borrow, the more you’re likely to pay back in interest. Also, borrowing over a longer period typically means you’ll pay back more overall. It makes sense to borrow only what you need, and – as long as you can afford the monthly instalments – to pay it off as quickly as possible. 

Can I improve my credit rating before applying?

While it can take a more sustained period of being financially responsible to boost your credit rating, there may be ways you could boost your score more quickly. These include registering on the electoral roll and checking your credit report for any mistakes. Our guide to improving your credit rating offers handy tips for ways to grow your credit score. 

How can I improve my chances of getting a loan with bad credit?

To improve your chances of getting a loan with bad credit you can: 

  • Improve the affordability of the deal by either borrowing less, increasing how much you earn or cutting back on your overheads and outgoings. This shows a lender you can afford the repayments 

  • Improve your credit rating. Check your credit report to see if there are ways you can improve your credit score. Our guide to improving your credit rating can help with this. Also make sure there are no errors in your credit file as this can affect your credit score. If there are mistakes contact the relevant lender to get the mistake corrected 

How much will a bad credit loan cost?

bad credit loan will cost more than a loan for someone who has a good credit rating because loan providers feel they are taking on additional risk when giving you the money -and they are looking to cover potential losses.  

The specific terms of a loan will differ depending on the lender, its attitude to risk and your own credit rating. However, it’s likely a secured loan will be cheaper than a personal loan because you are putting up your home as security. 

You can work out how much a loan might cost depending on the interest rate and length of the term with our loans calculator. It can also show you how much you could potentially borrow depending on how much you can afford to pay back each month.  

How much can I borrow?

With an unsecured loan, you can usually access a minimum of £1,000 up to £25,000. However, a loan for bad credit may offer a much lower total amount. A secured loan typically allows you to borrow more depending on factors such as how much the security (your home) is worth. With a guarantor loan, you’ll be able to borrow anywhere from £1,000 to £10,000 but this will also depend on your credit history and income. 

How long can I borrow for?

You’ll usually have some flexibility in deciding the length of the loan term for an unsecured loan but bear in mind the longer your loan term, the more money you’ll pay in interest overall.  

Most borrowers make fixed repayments on unsecured loans for between one and five years. For most secured loans the minimum duration or term is likely to be five years. 

Are there alternative ways to borrow with bad credit?

If you have a low credit rating and need to borrow money, there are a range of alternatives to a bad credit loan. These include:  

Credit builder credit cards

This could be an option if you only want to borrow a small amount of money and you are prepared to pay it back quickly. A credit builder credit card acts the same way as any other credit card. The difference is you’ll typically be given a lower credit limit and interest rates are higher. However, when used responsibly you can build up your credit rating, meaning you should be able to get better deals on loans and credit cards in the future.  

Money transfer card 

money transfer card allows you to borrow funds and move them into your current account. Be wary of the interest rate because if you have bad credit it might be high. There could also be a fees involved - levied as a percentage of the amount you borrow. 

Arranged overdraft

An arranged or authorised overdraft can offer more flexibility than a loan but should only be used in emergencies because interest rates can be high. You’re also unlikely to be able to borrow as much on an overdraft compared to a loan. On the plus side you can clear your overdraft as quickly as you like. It should also be simple and fairly quick to apply for.  

In some case you may look to borrow from family or close friends. This can be a good option if you know you are unlikely to be accepted for other types of finance – but it is not without it’s risks and pitfalls.

Compare loans with bad credit with MoneySuperMarket

Comparing bad credit loans is straightforward with MoneySuperMarket. We’ll ask you a few quick questions and run a ‘soft search’ that won’t harm your credit score. 

We can then show you loans that you’re eligible for from our panel of specialist lenders and we’ll give you an idea of your chances of being accepted if you apply. You’ll be able to choose from unsecured, secured or guarantor loans.  

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this service. Instead we are usually paid a fee by the lenders, but the size of that payment doesn’t affect how we show products to customers.