If you're looking for an unsecured loan, bad credit, caused by missed payments or in some cases simply having not built a credit history yet, can seriously narrow your options.
But if you want to buy a new car, improve your home or consolidate some existing debts you may still need a loan to help you pay for it. The trick is knowing what to look for.
The cheapest loan options are usually secured loans, which use your home to guarantee the balance if you have built up enough equity. However not everyone has this luxury, and if you don't own your home or don't want to risk losing it you can opt for an unsecured loan instead.
With no collateral involved, these are based purely on the lender deciding whether or not you can repay it. The lender's affordability checks will cover what you earn, your monthly outgoings and your credit rating.
Even if you have a history of bad credit, you should still go about your personal loan comparison in the same way; however, your choice will be limited to specialist "bad credit loans". Here's how to get the cheapest bad credit loan:
How large a loan do you need?
How much you borrow will affect what companies will offer you a loan and the interest rates they charge, so decide how much you need before applying. This will stop you wasting time looking into unsuitable products and help you more accurately work out what each loan will cost you. Simply match your required loan to each lender's maximum / minimum borrowing figures.
How long do you need to repay the loan?
You can often choose the length of the term you repay your loan over. A longer period will make your monthly payments smaller and can sometimes come with a lower APR, but you'll probably pay more interest overall. So when you choose the term of your loan, make sure you can comfortably afford the amount you need to pay each month, while still keeping the term as short as possible.
Would you like the loan to be fixed or flexible?
A fixed loan allows you to pay the same amount each month, making it easier to plan your budget. If the loan provider supplies a loan repayment calculator, you should be able to work out how much the payments will be depending by specifying the amount and term. With a flexible loan you'll still owe that fixed monthly amount, however you may also be allowed to pay off the loan early or make overpayments.
Fixed or variable interest?
A fixed interest rate will give you the peace of mind of knowing exactly how much you need to pay each month, as the rate you pay will be guaranteed for the loan's entire term. Variable interest rates aren't guaranteed, so could go up or down. This could leave you needing to pay back more than anticipated and could even be the difference between being able to pay back the loan or not.
Are any fees charged?
Loans can often charge set-up fees as well as interest, so be sure to factor these in when you work out the total cost of the loan. These can include charges for early repayment or for getting the money to you on the same day. Many unsecured bad credit loans are sold through brokers, so make sure you check for their fees too.
Will you be eligible for the loan?
If your credit rating is already low, you won't want to make it worse, so apply for unsecured personal loans for bad credit with caution. If you apply for too many, this could make your credit rating worse, so try to stick with the companies that will be willing to lend to you and don't just apply to all companies in the hope that one will accept. Our article How to check your credit report can help give you an idea of where you stand.
As well as your credit rating, keep an eye on the terms and conditions for any other eligibility criteria the lenders have, such as your age, your residential status, that you have a current account and a regular income.
Many of the loans you find advertised will only be available if you have a guarantor to back you up. This means that while the loan is unsecured for you, your guarantor must agree to pay it if you miss your payments. Most lenders require your guarantor to be a homeowner; if both of you fail to pay the loan they could lose their home. So be sure to make sure your guarantor knows of the risks before your apply.
Compare unsecured loans for poor credit
Providers generally see unsecured loans as risky, as there is no collateral to recover their money from if repayments are missed. So unsecured loans for bad credit often have higher interest rates, which makes it even more important to look for the best deal you can find.
Our unsecured loans bad credit comparison will help you find the best interest rates, but when you decide on the right loan for you, make sure you consider its total cost by looking at the monthly repayments and fees. Combine this with looking for the amount you need, available for repayment over a period that suits you.