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Poor credit loans

If you have a poor credit record, you could consider a ‘bad credit’ loan – designed for when you struggle to get standard credit products. But be aware that interest rates tend to be higher and you need to repay debts in full and on time to build up and repair your credit score.

Types of loans for bad credit

There are a number of loans available to those with bad credit:

  • Unsecured personal loans – let you borrow money without needing to use an asset you own as security.
  • Guarantor loans – require another person to commit to pay your loan repayments if you miss them.
  • Peer-to-peer loans – allow you to borrow from individuals instead of a bank.

Types of loans for bad credit

What you need to consider 

If you have an adverse credit rating, here’s what you’ll need to think about before applying for a bad credit loan:

  • Secured vs unsecured: if you fail to keep up with repayments on a secured loan you risk losing your home or other asset. 
  • Interest rates: you will probably pay higher interest rates if your credit rating is poor. 
  • Repayment duration: the longer it takes to pay back the amount you’ve borrowed, the more you’ll pay in interest.
  • Impact on your credit score: failure to keep up with your loan repayments could seriously affect your credit score. 

There are plenty of reasons why you might have a bad credit rating, from having failed to keep up with payments on a previous credit agreement, to having a County Court Judgement (CCJ) against you.

Even if you’ve never had a loan or credit card before you could end up with a poor credit rating because lenders can’t access any evidence to show that you could manage your borrowing successfully.

What do people use bad credit loans for?

Over a third of people who apply for bad credit loans plan to use them to deal with their debts. Conversely, people with good credit are more likely to apply for loans to help them buy a car. 

Purpose of bad credit vs good credit loans

MoneySuperMarket data, correct as of December 2017

Advantages of bad credit loans

The biggest advantage of a poor credit loan is that you are able to borrow money you otherwise wouldn’t be able to. This can provide a real financial lifeline to people who need a loan either to cover a major purchase, or perhaps to consolidate other debts.

Another advantage is that having a loan can actually help people with a bad credit rating to repair their credit status. This is because, provided you always make payments on time, you demonstrate that you can manage your money responsibly.

Disadvantages of poor credit loans

The biggest drawback with this kind of loan is that interest rates are normally high relative to standard loans. Applicants for bad credit loans have usually had problems managing their finances previously, so they represent a higher risk to lenders. This means the rates they are offered are higher than they would be for someone with a good credit score.

Who is most likely to have bad credit?

As you would expect, income and bad credit are closely linked. Although a good income doesn’t always mean a good credit score, higher income individuals are generally more likely to have good credit. In our infographic, we break down the income brackets that people with good and bad credit fall inside:

Purpose of bad credit vs good credit loans

69% of individuals with bad credit fall within the £0-£20,000 income bracket, compared to 47% of individuals with good credit. In addition, a much greater proportion of individuals with good credit earn higher incomes, suggesting that there’s a correlation between income and credit record.

MoneySuperMarket data, correct as of December 2017

Age and bad credit

Age is also a determining factor when it comes to bad credit. Younger people are much more likely to have bad credit than older people. The 18-24 demographic is the only one in which bad credit outweighs good credit.

 

Income breakdown: bad credit vs good credit

MoneySuperMarket data, correct as of December 2017

Find the right loans for you

There are many different loans for people with bad credit, so always do plenty of research before applying to make sure you have found the best loan to suit your needs. You can also compare debt consolidation loans if this is suitable for you

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.

 

48.5% APR Representative

 

SECURED LOANS: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE, LOAN OR ANY OTHER DEBT SECURED ON IT.