How do loans for bad credit work?
Bad credit loans are designed for people with poor credit scores. Our guide explains how these loans work, and how to boost your chances of being accepted.
Key takeaways
You may be able to get a loan even with a bad credit score, although you may be subject to higher APRs
A bad credit loan can help you access money quickly. For example, you may need to fund urgent home repairs or make an emergency purchase
Consider if you can afford the loan repayments, otherwise you risk harming your credit score even more
What is a bad credit loan?
A bad credit loan is a personal loan designed for individuals with poor, weak, or no credit history.
Because lenders view borrowers with low credit scores as higher risk, bad credit loans typically come with higher interest rates and stricter terms than loans offered to individuals with better credit scores.
What type of loan can I get?
Having a low credit score doesn't mean you can’t get a loan; however, your options will be more limited than someone with a good credit rating. Depending on your circumstances you might be eligible for:
Personal Loans
Secured Loans
Guarantor Loans
To find out if you're eligible for a loan, use our eligibility checker - your credit score won't be harmed.
Representative 23.3% APR
How do bad credit loans work?
If you have poor credit, you may find it harder to be approved for a loan. Bad credit loans are made for people with your credit history, and it’ll be easier to be accepted for borrowing.
Pick and apply for your loan: You decide how much money you need to borrow and for how long. The lender will run a credit check and decide whether to accept you for credit.
Receive the funds: After being approved you can expect the cash to enter your account in a few days.
Paying the loan back: You’ll usually have to pay your loan back in monthly repayments. You’ll have to pay back the loan amount borrowed plus the agreed interest.
What scores indicate 'poor' or 'fair' credit?
Depending on the credit agency you check your score with, the definition of bad, low, or no credit will change.
Credit Agency | Very Poor | Poor | Fair |
|---|---|---|---|
TransUnion | 0-550 | 551-565 | 566-603 |
Equifax | 0-300 | 300-579 | 580-669 |
Experian | 0-560 | 561-720 | 721-880 |
How to boost your chances of acceptance
Take steps to make your loan application successful - even with no, low, or bad credit.
Check your eligibility before applying
Applying directly with lenders will show up on your credit file, and too many 'searches' in a short time frame is a red flag for lenders. Instead, use an eligibility tool (like ours) to provide some basic information and find out which loans you have a higher likelihood of being accepted for (including preapproved).
Clear up your credit file
Check your credit file and correct any errors that might artificially lower your credit score. Also, double check you're registered on the electoral roll - the average credit score for people on the electoral roll is 581, whereas for people not registered their average score is 540, so it makes a big difference.
Only borrow what you can afford to repay
Think carefully before taking on debt, as a low credit score indicates difficulty managing your finances.Only borrow what you can afford to repay - use a calculator to work out how much you need and what that might cost per month during the repayment term.If you're consolidating debt, pool what you owe and only borrow enough to cover that amount.
Secured loans can offer better rates, but they carry risk
If lenders won't provide unsecured access to lending, then some providers may offer secured loans against the value of your home.
You risk losing your home if you can’t keep up with repayments, so think carefully and plan ahead to ensure you can make the monthly repayments.
As a last resort, a guarantor can help
Guarantors are a form of security against the debt and will need to pay back the loan if you can't.
Lenders will have criteria guarantors need to meet, such as being over 21, possessing a good credit history, and preferably a homeowner. Think carefully before looking for, or agreeing to be, a guarantor as if difficulties arise, this can put significant strain on the relationship and there are legal ramifications for the guarantor if they default on the loan repayments. Please note that we don't include guarantor loan providers on our panel.
Get all your personal information ready
Before applying, get all your information together, including but not limited to:
Your current and previous addresses from the last five years
Your monthly income and outgoings (including firm spending commitments) and a realistic idea of whether that will change in the next 12 months
Your banking information
Disclosures of any CCJs or bankruptcy
What can I use my loan for when I have poor credit?
A loan can be used for anything. Here’s some of the reasons people typically take one out:
Emergency purchases: If an unexpected, but necessary, cost has come up, you may not have the funds to pay for it. A loan can help you cover this essential purchase
Home improvements: Renovating your house can come with a big price tag. A loan can help make it more affordable
Buying a car: Paying for a car in one go can be expensive. A loan can help spread the cost
It’s important to remember that if you’re borrowing with bad credit and miss repayments, you risk hurting your credit score even further. So, you should carefully consider your options before taking out a loan. If you’ve managed to build up substantial savings, it could be wiser to use this instead if you’re not confident you’ll keep up with payments. Use our loan calculator to get a rough idea of what the loan will cost you.
Use our loan calculator to get a rough idea of how much a loan could cost.
Loan calculator
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Calculate and compare loans: Find out how
What are the pros and cons of loans for bad credit?
Pros
Gives people with bad credit access to borrowing: It can be harder to be approved for borrowing when you don’t have a good credit score. Loans for bad credit give people with low credit scores the financial lifeline they may urgently need
Fix your credit score: A bad credit loan could give you the opportunity to get your credit score back on track. If you keep up with the payments on your loan, you can prove to lenders you are trustworthy and in time, your score will shoot up
Get money quickly: If you’re in need of cash quickly, then a bad credit loan can be a massive help. Most lenders will get the money over to you in a few days
Cons
High interest rates: Bad credit loans will come with higher rates of interest than standard credit loans. This is because bad credit borrowers are seen as higher risk, so a higher interest rate offsets the risk for the lender
Damage your credit score: If your credit score is already low, you run the risk of harming your credit rating further if you don’t keep up with loan repayments. An even worse credit score will make it very difficult to borrow in the future
Deepen your debt: If you’re using the loan to pay off another debt, you could potentially find your circumstances worse if you struggle to keep up with the loan repayments. If you know you’ll be unable to afford the repayments, then think carefully before borrowing
How long will it take to receive the money?
The time it takes to get the money will depend on your provider. However, it usually takes between 24 hours and a week. A key to speeding-up the process is making sure the details you provided are accurate. If you’ve made any mistakes in your application this could cause delays.
What to consider when interest rates are high
The Bank of England's base rate is currently at 4.75% (December 2024), which, despite cuts in August and November, is still high compared to the period before the energy crisis. This has marked consequences for borrowers that you should be aware of, including:
Loans become more expensive: As the base rate rises, so does the cost of borrowing. This means that any new loans you take out will likely have higher interest charges, making them more expensive over time.
Bad credit loans have higher APRs anyway: If you're considering a bad credit loan, remember that these typically come with higher APRs than standard loans. With the current high base rate, these loans could become even more costly, making it crucial to evaluate if this is a financially viable option for you.
You need ensure you can afford repayments: It's more important than ever to ensure that you can manage the repayments on any loan you're considering. You can use our loans calculator to get an idea of how much a loan could end up costing you
Should I get a credit card instead?
Depending on your goals, there are situations where a card might be better
For smaller credit limits, a credit card for bad credit might be easier to get approved for and give you
A bad credit loan can allow you to get access to funds even with a poor credit score, and if you prefer a structured repayment plan, making fixed monthly payments can make it easier to budget and manage your finances.
However, it should be noted that with a bad credit credit card or a loan, you are likely to have more limited access to credit and will be subject to a higher APR.
Step up your credit score
Your credit score can change. If you keep up with your loan repayments, then over time your credit rating will improve. A better credit score will unlock better terms when you apply for credit. Keep up with your credit score with our Credit Score tool, we’ll also send you helpful tips and tricks to improve your score.
How to improve your credit score
Think your credit score could use some TLC? Here's some quick and easy steps to take, which could make a big difference...
Get on the electoral roll
Getting on the electoral roll provides proof of your address and is checked by lenders when determining your credit score. So simply registering to vote can significantly boost your credit rating.
Pay your bills on time
Missed utility bill payments can leave a major mark on your credit report. Conversely, practicing good financial discipline over a sustained period by consistently paying your bills on time and in full will see your credit rating improve.
Check your credit report is accurate
Mistakes on your credit report could mean that bills are showing as unsettled, or that you've missed payments that you have, in fact, made in full. For that reason, it's vital you check your report for errors and missing information.Then if you spot something awry get in touch with the company to get it corrected, You can also add a 'notice of correction' yourself, which allows you to explain why a payment was missed.
Demonstrate stability
Lenders can see frequent changes of address as a red flag. But staying at single address for a while will help how you're perceived. And remember: if you do move house, make sure you register on the electoral roll.
Think about joint accounts
If you've applied for credit with a partner at any time, your credit history becomes entwined with theirs. So if you're trying to improve your credit score, you should urge your partner to do the same. That goes double if their credit rating may have been less-than-excellent in the past.
Need more help? Take a look at our guide to maximising your credit score.
Get familiar with your credit file before applying
Many of us aren’t familiar with our own credit files and yours might not be what you think it is – for good or bad!
If it’s better than expected, cheaper, mainstream options may be open to you. But if it’s worse, piling up more debt may not be the answer and a debt charity like StepChange may be a better place to get help sorting out your finances before going looking for more credit.
- Kate Hughes, Money & Savings Expert
Worried about your financial situation?
You’re not alone. According to our charity partner CALM (Campaign Against Living Miserably), eight out of ten people have experienced money worries in the last 12 months. What’s more, a quarter of a million people worry about money at least once a day.The good news is that help is at hand. CALM is there to assist you, with practical advice to help you get your debts under control, as well as practical tips on how to talk to people closest to you about your financial situation.If your finances are affecting your mental health or you really can’t see a way forward, CALM offers a telephone helpline too. It’s open from 5pm-midnight every day, completely confidential and free to call.
Read our related content
Having a bad credit score can make it harder to borrow but it doesn’t mean you’ll be unable to. We have a range of’ loans for bad credit’ guides to help you understand your options.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers. Representative 23.3% APR.
