Bad credit loans are designed for people with bad credit scores, or no credit history. These loans usually have much higher interest rates, and are designed for those having trouble borrowing from regular sources of credit because of their credit history.
What are the different types of loans for bad credit?
Here are the different kinds of bad credit loans:
Unsecured personal loans for bad credit let you borrow money without needing to use a property you own as security for what you borrow.
Guarantor loans need someone else to agree to cover your loan payments if you miss them, and can offer lower interest rates. Here is how guarantor loans works.
Peer to peer loans let you borrow money from investors rather than a bank or building society, but the rate will be higher if you have bad credit. Here is how peer to peer borrowing works.
Secured loans require you to put up an asset, such as a car or equity in a house, as a security against a loan. This will let you borrow more but the lender can repossess the asset if you don't repay the loan.
Can you get a bad credit loan?
Yes, you can still get a loan if you have a poor credit history.
Bad credit loans are not offered by all loans companies and those that do usually charge a higher annual percentage rate (APR). This is because borrowers with poor credit are considered a higher credit risk. For example, you are more likely to default if you have bad credit.
Loans for poor credit can help you improve your record if you keep up with repayments and pay off the loan on time. If you have bad credit and you need a loan, this comparison includes personal loans that could accept you.
How can I find the best loans with bad credit?
When looking for poor credit loans, consider:
Secured or unsecured: A secured loan will allow you to borrow more, but there is a risk to your property if you can't keep up with repayments.
Interest rates: Bad credit loans usually come with much higher interest rates than standard loans, which means they can be expensive to repay.
Loan term: The longer you take to pay back your loan, the more you will pay in interest. This means your poor credit loan could cost you more overall.
Credit score: If you don't keep up with your repayments, this will negatively affect your credit rating. This will make it harder to borrow in the future.
What are the drawbacks of loans for poor credit?
High interest rates: Loans for bad credit have much higher interest rates than standard loans as borrowers represent a higher risk to lenders. This tends to happen with unsecured loans where there is no security or guarantor.
Risk of repossession: If you put up an asset, such as your car or home, as security for your loan, you may lose it if you fail to repay the loan.
Fees: Bad credit loans come with several fees attached, such as arrangement fees, bounced payment fees or early repayment fees.
Other ways to get loans for bad credit
Try these alternatives before applying for a bad credit loan:
Budgeting loans are available from the government if you receive benefits
Credit union loans are offered by community-run cooperatives.
You can find out more about alternative ways to borrow with bad credit here.