What are your options for borrowing with bad credit?
If you have a bad credit history, your borrowing options are limited. But that doesn’t mean that getting accepted for a loan is a no-go. There are specialist lenders for people with poor credit histories and if you do your homework and choose wisely, there are bad credit loan deals to be had. Just like anything in your financial life, the key to success is to make sure you do your research. Make sure you've worked out what your realistic budget is and invest some time in comparing your options to find the best bad credit loan to suit your specific needs and remember: just because you can get accepted for a bad credit loan, it doesn't mean you should take one unless you're absolutely certain you're going to be able to pay it back.
Different types of bad credit loan
- bad credit loans
- secured loans
- unsecured loans
- guarantor loans
- short term loans
- doorstep loans
- logbook loans
We don't feature secured loans on Choose Wisely, bad credit or otherwise, so I'm not going to go into too much detail about them here. Secured loans are loans secured against a property or other valuable asset which stands as security against the value of the loan. The basic idea is if you don't pay the loan back, the property or asset is sold and the proceeds cover the outstanding balance. Because secured loans are low risk for lenders, they tend to be priced at the cheaper end of the scale. Securing a loan against your property means that your home is at risk if you don't meet your repayments - so as with any loan, make sure you can afford to repay it before you take it out.
Pretty much the opposite of a secured loan, an unsecured loan is a personal loan not secured against a property or valuable asset. After a short hiatus from the market, bad credit unsecured loans returned to the UK in 2012 and are now an increasingly popular product in the bad credit category. Unsecured loans for those with bad credit histories range from around £200 - £10,000 and can be repaid over periods of up to 5 years. Annual interest rates range between 40% and 75% with representative APRs of up to 99% and work best for those looking to redeem early.
The defining feature of a guarantor loan is that even if you have bad credit you can get access to a relatively low rate of interest rate (c.50%) so long as you have a friend or family member with a good credit history to back your application. Guarantors often need to be a homeowner, particularly if you're applying for a larger loan amount or if your credit history is pretty bad. Guarantor loans range from £500 - £10,000, with repayment periods of between 1 and 5 years.
Officially known as high-cost short-term loans, the defining feature of this category is as the name suggests, their cost and the duration over which you repay the loan. Short term loans tend to be used by those with bad credit due to the lenient acceptance criteria of lenders, who can afford to lend to those who appear riskier because the interest they charge covers potential losses. Amounts range from £100 to £1000 with repayment periods of anything from one week to 12 months. As with any loan (bad credit or otherwise) failing to make your repayments on a short term loan can seriously affect your financial health. Make sure you can afford to repay the loan before you take the money.
Probably the oldest form of lending in the world, doorstep loans are loans that are paid out and collected by an agent who visits your home. They are offered to those with a bad credit history because they're small loans and agents tend to build up personal relationships with the customers they lend to, bypassing the usual credit search in favour of a more personal approach. Doorstep loans tend to be priced at an annual interest rate of around 100%, amounts up to £300 and repayment periods of up to 12 months.
Are niche variation of the bad credit secured loan, logbook loans are loans that are secured against a car, van or sometimes a motorbike. If you can't make your repayments, your vehicle is sold and the proceeds cover the outstanding balance. Logbook loans for those with bad credit histories range from around £100 - £1,000 and can be repaid over periods of up to 12 months. Annual interest rates range between 50% and 100% with representative APRs of up to 750%. Your vehicle is at risk if you don't keep up repayments so again, if there's any chance that you might not be able to afford to repay the loan, don't take the money.
If you're looking for a loan and you have a bad credit history, those are your options. Make sure you've done a thorough budget plan, research your chosen product carefully, have a read of customer reviews and make sure you Choose Wisely.
Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.