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11 min read

Thumbs down and a bad credit score.

How Legitimate are Bad Credit Loans?

If you've got bad credit and you're looking to take out a loan, you might think that bad credit loans are too good to be true. Will UK lenders really let you take out credit if you have a poor credit score? Some specialist lenders are designed for that very purpose. Let's take a look at the legitimacy of bad credit loans.

Thumbs down and a bad credit score.

What is a bad credit loan?

Bad credit loans were designed so that even people with a poor credit history could borrow money.

A bad credit loan is a type of loan specifically for people with bad credit, usually a lender will have other means in place to secure their investment such as high interest rates or charges.

A lender may also want your loan to be secured against an asset or for you to have a guarantor as collateral.

Why would I need a bad credit loan?

Reasons why you might need a bad credit loan:

  • You have a bad credit score meaning you have limited loan options
  • You're currently building your credit score but still need time to get to your ideal financial situation
  • You're looking to consolidate debt - in this case, you'd be looking specifically for a debt consolidation loan

Sometimes, it's difficult to know why you've got bad credit if you've never defaulted on loan payments.

How much does credit rating matter?

A credit score with a question mark in front of it.

Your credit rating matters a lot when you're trying to get a loan. Your credit rating will determine what types of loan you are eligible for. A poor credit score could mean your loan options are limited.

Your credit rating and credit history help lenders decide if they should lend to you, and the lending criteria will differ depending on the creditor. That means you might be able to borrow money from one lender with a credit score of 500, but not with another.

That's why it's always important to do your research about a loan company before applying. There are ways to check if you're eligible for a loan before submitting a credit application, check out our knowledge hub: 'How to check if I'm eligible for a loan'.

It's also essential to check what your credit score is before applying. Then you know if you should apply for a bad credit loan or another type of loan.

How much does credit history matter?

One reason, especially if you're a first-time lender, that you might be left looking at bad credit loans is that lenders are declining you because you have little or no credit history.

Why does credit history matter?

If you've never borrowed before, lenders can't see if you're a responsible borrower. Even if you have a poor or fair credit score, lenders may be more willing to lend to you because they have a better indicator of how you'll be at meeting repayments.

If you're interested in borrowing in the future, it's important to borrow now! Take out a credit card and start building your credit history. Just make sure you can afford the repayments and don't exceed your credit limit.

What's the difference between bad credit loans and payday loans?

  • Bad credit loans are designed for those with bad credit.
  • Payday loans are designed to get you from payday to payday - a mid-month top-up.

It might be confusing when applying to see what the difference is, as Payday Loan lenders will often accept people with a bad credit rating, but you could still be declined credit if you have a very poor credit history.

Payday loans often charge very high interest rates especially if they're accepting you with a bad credit history. As with other lenders, they'll charge higher interest rates, the lower your credit score is - as it's more of a risk for them.

What's the difference between bad credit loans and secured loans?

A scale with the words Secured and Unsecured being balanced.

If you've been trying to borrow money, you might have come across secured loans vs unsecured loans.

The difference between unsecured loans and secured loans:

  • An unsecured loan isn't secured by a property or asset
  • A secured loan is a secured by a property or asset

Bad credit loans are usually a type of unsecured personal loan. Unsecured personal loans tend to be popular because you don't need to be a homeowner to get one. Though, if you have very bad credit, it can be harder to get an unsecured loan, and they might have higher interest rates and expect you to pay more in each monthly repayment.

You can find some specialist lenders that offer secured personal loans for bad credit, and they'll usually be aimed at homeowners. You can use an asset such as a home to secure your loan and, in some cases, this could mean you're more likely to be accepted.

What are guarantor loans?

A guarantor loan is a loan that has someone (a guarantor) in place to pay your repayments if you can't afford to. If you have poor credit, a guarantor loan might be a good choice as you'll be more likely to be accepted.

However, there are several things to consider:

  • Your guarantor needs to have a good credit history
  • Ideally, your guarantor needs to be a homeowner
  • Your guarantor needs to be able to afford your monthly repayments
  • You need to know someone you'd feel comfortable asking
  • It could risk your relationship with that person

When looking at loan options for bad credit, a guarantor loan could be a good alternative, but it depends on who you know and can become a problem if you can't afford the monthly repayments yourself.

Can I get Debt Consolidation Loans for bad credit?

A bad credit score in a loan process.

You can get Debt Consolidation Loans for bad credit. One reason you might be looking for a loan and have bad credit is that you're looking to pay back your current loans in a more affordable way. A consolidation loan can help you if you have multiple lenders harassing you for payment. Consolidate debts from £5000 to £75,000.

Benefits of a Debt Consolidation Loan for bad credit:

  • Pay back just one creditor
  • Get accepted with bad credit
  • Consolidate unsecured personal loans
  • No upfront fees
  • Apply online

Are Debt Consolidation Loans legitimate?

If you've been struggling with multiple debts for a while, the idea of one loan to cover all of them might seem too good to be true, but Debt Consolidation Loans are legitimate. You need to take into account all the things you usually would when choosing a loan, such as:

  • What is the provider like? Check their reviews and what other customers say.
  • How much is the interest rate? And do they charge any other fees?
  • Are they regulated by the Financial Conduct Authority (FCA)?
  • Are they on the Financial Services Register?

Are bad credit loans legit?

A bad credit loan is just as legitimate as any other kind of loan, you just need to watch out for certain things when applying:

  • Very high interest rates
  • Long repayment periods meaning overall you pay more on interest rates
  • Large handling fees and upfront costs

It's always important to research a bad credit loan provider before signing up for anything, and if you're looking for bad credit loans because you want to pay back debts quicker, think about a specialist lender such as a Debt Consolidation Loan company.

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Summary

Key points to take away:

  • When looking for loans for bad credit, it's important to compare bad credit loans, as you would with any kind of loan
  • Check interest rates, charges, and customer reviews
  • If you're looking for a bad credit loan because you want to repay debts, you might want to look specifically for a debt consolidation loan for bad credit
  • If in doubt, speak to a financial advisor or credit expert

Debt consolidation loans for bad credit can help you to turn several monthly repayments into one affordable monthly payment.

  • Reduced monthly repayment
  • Only one interest rate
  • Only one creditor
  • All credit scores considered

See if you could consolidate your debts.

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Further reading