If you've got a low credit score or have missed payments in the past, it can be difficult to get approved for a new loan. Bad credit loans are meant for people who are less likely to be approved for credit by traditional lenders.

How do bad credit loans work?

Loans for bad credit are typically offered by specialist lenders, which instead of basing the eligibility for a loan primarily on a credit check, look at each borrower’s individual financial circumstances to decide whether they can afford the loan they are applying for.

So if you have a poor credit history or even a County Court Judgement (CCJ) on your record, you may still be able to get a loan.

What are the eligibility requirements for a bad credit loan? 

To get a bad credit loan you need to:

• Be a UK resident over the age of 18

• Be current account holder

• Be able to prove you can pay back the loan

• Have a regular monthly income above a specified threshold

There are three credit reference agencies in the UK, and each one has its own scoring system.

They each track people's history of paying back loans and bills on time over the past six years, along with public information such as county court judgements and whether they're on the electoral roll at their current address.

All of this information is rolled up into a single credit score - with points available for things like making payments on time and not maxing out your credit cards, while points are taken away for things like missing payments or defaulting on debts.

Currently, the three agencies define a poor credit score as follows:

• Experian: 0-640 points

• TransUnion: 0-565 points

• Equifax: 0-438 points

You have a right to check your credit score with each of them for free to see how you're doing, as well as to ensure there aren't any mistakes that could negatively impact your rating.

Credit agencies track people's history of paying back loans and bills on time over the past six years"

Applying for a loan should never be a rushed decision, so it's important to take the time to consider the following questions:

Do you need to borrow urgently?

Unless you need the money immediately, it may be better to spend time improving your credit score rather than applying for a loan for bad credit. Doing so will help you secure a lower rate of interest, which, in turn, makes you less likely to default and harm your credit score in the future.

How much do you need to borrow?

The amount you borrow plays a role in being accepted for credit. It can also determine the APR you get. Typically, the larger the sum, the lower the interest rate, but it's important to only borrow what you need.

Before taking out a bad credit loan, consider if another type of credit might be more appropriate. This depends on how much you need to borrow and what you’re borrowing it for.

Credit cards

If you only need to borrow a small amount, consider a credit building card instead of a bad credit loan. Not only are you more likely to be accepted, but if you make your repayments on time, you can improve your credit score over time.

Overdrafts

Another option for those with modest borrowing needs is to contact your bank and apply for an overdraft on your current account. This is a particularly good option if you need the security of being able to cover regular expenses every now and then.

Take a look at our detailed guide to borrowing with bad credit to find out more.

FAQs