Loans for Bad Credit Holders

Although you may never have taken out a loan, used a credit card, or borrowed any money at all, there are many contracts that will have been recorded in your credit file, such as mobile contracts, gas and electricity bills, etc. No matter whether you have kept on top of these expenses your credit score depends on your ability to fully repay your debt to schedule. Therefore, you need to have taken out a loan and be paying it back in full, and on time, in order to build up your credit score. Therefore, if you have a low credit score because you haven’t borrowed or used a credit card, or you have a reputation for missing credit card repayments, then you will be in a bad position to get a loan. However, there are a handful of loans targeted specifically at those with bad credit.

What loan can I apply for if I have bad credit?

There are a few loans targeted specifically at those with a low credit rating, such as a guarantor loan, where a friend or member of your family sign to say that they trust you to meet the payments on time and in full, and if you don’t do so then they will pay the outstanding amount. Other options are peer-to-peer lending, applying for a credit card, or borrowing from relatives or friends. As always, make sure you can pay the loan back in full before applying, otherwise taking out a loan that you cannot repay may end up further damaging your credit score. First, take a look at your expenses and set a household budget to make sure you have the money available to meet the repayments on time, and then look at our comparison chart to see what loan works best for your situation.

Guarantor Loans

As credit lenders are much more intense with their criteria for eligibility, there are only a few lenders that offer guarantor loans. Take a look at the available lenders in our comparison chart.

As you are relying on the goodwill of your family member or friend, it is important that you make sure you can meet the repayments before you apply for the loan. This process makes the loan much more personal as it can affect your relationship with the guarantor if you leave them to clean up your mess if you overestimate your ability to keep up with the payments. This is also important to consider if you have been asked to be a guarantor for someone else.

A Guarantor loan can offer up to £7500 with fairly high APR’s of up to 199%, but do consider that they do not discriminate against your credit history and therefore the APR offered is the best you will see in most low credit score loans.

Can I apply for a Guarantor Loan?

To apply for a guarantor loan you must satisfy the eligibility criteria. Most lenders will require the following:

  • Aged 18 or over
  • No history of bankruptcy – though some will lend if you have been discharged from bankruptcy
  • A monthly income
  • A guarantor with a good credit rating, over 18 years of age, and a certain threshold of income to expenditure to allow for the possibility that they may need to repay the loan in the applicant’s place.

Peer-To-Peer Loans

Peer-To-Peer, or P2P, loans are fairly new to the financial scene but are a particularly good option for those out there with a moderately bad credit score, but not those whose credit score is extremely low.

The P2P loan system links you up with another person who is an individual ‘lender’. The lender is able to gain an income from the interest being charged on the loan which is given out to the borrower, whilst the borrower is able to borrow the money and repay the loan and interest but without a bank or other financial institution as the middle man. This enables the borrower to take out a loan which they may not have been able to do with traditional bank loans.

This is an extremely risky loan to engage in, especially for the lender, as the reasons a borrower may be resorting to a P2P loan is due to their rejection from traditional bank loans. This rejection can come as a result of a bad credit history proving them to be unreliable in following through with repayments. As a result, the interest on a P2P loan may be much higher than other loans.

 

Payday Loans

A payday loan is also known as a high cost, short term loan and is a fairly costly mode of borrowing. As such, they are better to avoid if you can, and definitely should not be used as a way to manage money in the long-term. However, if you are in dire straits, a payday loan can help you along at short notice. This type of loan is one that is intensely regulated by the FCA and so from the start you will know exactly how much you will have to pay back.

 

A Logbook Loan

You can apply for a loan using your car as security, and the logbook (V5C) will be held by the lender until the last payment has been made. As such, if you cannot finish payments and cannot pay off the loan then you essentially sell your car on. This is known as ‘logbook lending’.

Whilst the lender technically owns the car for the duration of the loan, you still have possession of the car and can drive it as normal. The transaction will be fulfilled using a ‘bill of sale’ and will only remain valid for the duration of the loan.

This loan is a good option for those with a low credit score, though it is more expensive than some alternatives.

Can I apply for a logbook loan?

As long as you fulfil the following criteria you can apply for a logbook loan:

  • Age 18 or over
  • UK resident
  • Show evidence of financial security
  • Provide photo ID
  • Possess a fully taxed, MOT’d, and insured vehicle which is clear of finance

 

What’s the catch?

The main risk is to your vehicle, and if you can’t pay off the loan then you could lose it to repossession. Make sure you are aware of the extent of this risk and if your job relies on your possession of a car then a logbook loan is not the best option for you.