Loans for Bad Credit

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By Crispin Bateman
Updated on Wednesday 13 October 2021

light at the end of the tunnel

Having bad credit in the UK can lead people to apply for bad credit loans. But you can use that bad credit loan to actually improve your credit score. All it takes is some smart loan comparison and a little forward planning.

What is a Bad Credit Loan?

Simply put, a bad credit loan is one where the lender is risking a little more lending to someone with an adverse history of repayments or other negative credit background.

Of course, they want something back for being willing to take that risk and that’s normally a greater amount of interest on the loan repayments. Sometimes these bad credit loans will require no credit check no guarantor and can be unsecured. These types of loans do exist but they are most likely going to be peer to peer loans. Read the rest of this article to find out what they are and how they can be useful.

Why Get a Bad Credit Loan?

The reasons for getting a loan are numerous, but for people with bad credit, the primary reason is usually to pay off and consolidate existing debts.

Importantly, showing a turn around in your financial management by taking a loan out and making full regular payments will soon turn your profile from that of bad credit to good.

There are three main types of loans available to people with bad credit:

Type 1 : Unsecured Personal Loan

This type of loan is the most common, and a standard bank loan comes under this category. Unsecured means you don’t have to put up any sort of collateral for the loan (for example, your house or car), and thus you do not risk losing your home or other assets if you do not keep up repayments.

Most unsecured personal loans are for amount between a few hundred and £25,000. The interest rate will vary greatly, based on many factors, of which your credit rating is one.

To mitigate their risk, most lenders will increase the lending interest rate in accordance with how great a risk they believe you represent. Where a loan might be advertised at 3%, once you are done filling in the forms, your offer may come back at a much higher amount, often 15-20% and sometimes as much as 30%. Deciding whether to reject such an offer can be a complex decision.

I Need the Money and I Won’t Get a Better Offer

Desperation is a strong factor in people accepting loans on poor terms. While it might feel like there’s only one option and taking the first offer that has passed the initial checks has to be done, the reality is, like many other things, there is competition for your business.

To the lender, having you as a customer is important to them. If one bank or lending society has made you an offer, then the chances are another will too. Take a step back, breathe, and shop around a little. 

If you are looking to consolidate existing debts and the interest rate on the offered loan is high, it might well be the wrong option for you.

I Want to Improve My Credit Rating and I’ve Shopped Around

This is a much better perspective. Taking out a loan on bad credit and making those regular repayments is going to go a long way to repairing your credit rating for the future. If you have made an informed choice and determined that the benefits are worthwhile then accepting the offer makes sense.

Type 2 : Guarantor Loans

A guarantor is someone willing to take on the risk of making the payments should you fail. Often this is a family member who has good personal credit and is willing to back you up in this way. The interest rates with a guarantor loan are likely to be much better than an unsecured personal loan, and having someone to help and discuss your finances with who you trust can be a huge benefit.

Remember, if you fail to make payments then your guarantor is fully legally responsible for doing so on your behalf. Taking out a guarantor loan can have a large impact on your personal relationship and should only be done if you are confident in making those regular payments.

Type 3 : Peer-to-peer loans

A relatively new system available, a peer-to-peer loan is one where the money is lent to you not by a bank or loan companies, but instead comes from normal people who are willing to invest.

Peer-to-peer systems work by having people interested in investing their savings come together to make those funds available for the group to lend. It shares some similarities to a bank in that you go to the group and fill out a form requesting a loan, and they will judge the terms of that loan based on your credit rating and status, but it differs in that there’s potentially a greater amount of flexibility than with a regulation-led bank.

What is Debt Consolidation?

Data from credit brokers show that people with bad credit scores most often take out a bad credit loan to help with other existing debt.

Consolidation is a fancy word which means ‘merging’, and is a term used often in banking and loans. A debt consolidation loan allows you to take all existing debt from multiple places and merge them into one easily manageable monthly payment.

Over the years, it is easy to mount up debt across many accounts:

  • Bank overdraft

  • Existing loans

  • Credit cards

  • Store cards

  • Personal loans from friends and family

  • Missed bill payments

  • Tax bills

With payments to these debts spanning the monthly accounts and coming at bad times, or simply being missed altogether, it is easy to understand how trying to juggle the complexity of the payments can lead to problems and, inevitably, a bad (or worse) credit rating.

Taking out a single consolidation loan to pay off all these existing debts and leave you with one single payment can be a huge help. Not only might it lower the overall interest you are paying but also, importantly, it makes everything manageable with one single payment a month – something which cannot be overrated for anyone who has trouble juggling bills and direct debits spread over weeks. Most banks charge for every direct debit or payment bounced through the system, and those charges can mount up to huge amounts if left unchecked – a single payment means, at worst, one bounced direct debit in a month!

A consolidation loan will lead to a level of increased temptation: once you’ve paid off those credit cards and cleared the overdraft, those facilities will still be there for you to use. If you feel that lure will be difficult to resist, then as part of your financial strategy, we advise removing those temptations by doing away with the credit cards and lowering your arranged overdraft.

Of course, our advisors are here to help you understand your consolidation loan and help you plan accordingly – contact us today!



  • Pays off, and makes happy, all existing creditors

  • Merges multiple payments into one simple monthly charge

  • Can lower overall interest paid

  • Temptation to re-overspend on other accounts

Bad credit stress

Having bad credit can feel like being trapped in a glass cage – you can look out and see other people getting on with their lives; paying for cars, holidays and mortgages without a second thought, yet you are struggling to get through the month and no one seems willing to stretch a hand to help.

With a little research however, it is possible to find many institutions that may be willing to stretch out that hand.

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