Many people assume that you can’t get a personal loan with bad credit. After all, that bad credit is a sign that you aren’t that great at managing your finances; so do lenders really want to give unsecured personal loans for poor credit borrowers? Well, the answer is most definitely yes.
While lenders won’t always have the low interest rates that you might get with other forms of loans, it is nonetheless possible for those of you with poor credit to take out a small personal loan.
Who might need bad credit personal loans?
Before we go any further, let’s make clear just what we mean by “bad credit”. It’s important to note that it’s not the same as having no credit- this would be where you hadn’t taken out any loans or a mortgage in the past, so have no financing history. On the other hand, people with bad credit may have previously missed payments on loans, or even faced legal action for this reason. The most extreme end of this is bankruptcy, but anyone with a poor credit score might have this impact on their ability to take out a loan. You might not even know that you have a bad credit score until you try to take out a personal loan.
What do personal loans with bad credit involve?
While personal loans for those with bad credit are much the same as a standard loan, there are some important distinctions which need to be made:
- People with poor credit will almost certainly have to pay a higher amount of interest on their personal loan, since they are a higher risk for the lender to take on.
- Your options will be limited, since the very best loans and rates are saved for borrowers with a cleaner credit score.
- Your credit rating isn’t the only factor which affects personal loan interest rates, either. Lenders look at a whole host of different things from your age and career, to whether you own any property or other significant assets.
What are my options for a personal loan with bad credit in the UK?
While it might seem like the odds are against you if you are applying for a personal loan with bad credit, you can nonetheless still get a loan from plenty of different lenders. In fact, most lenders will be happy to provide you with an unsecured personal loan such as Cashfloat. You might find that banks turn you down for a personal loan if you have a poor credit score, but other lenders will usually be able to help. It always pays to shop around, though, so look at all your options before you commit to a loan.
Secured vs unsecured personal loans in the UK
It’s also important to make clear the difference between the two major types of personal loans in the UK: secured and unsecured loans. A secured loan is one where your property is put up as collateral. If you default on the loan, then the lender has the authority to claim that property. The collateral might be your home, or it could be another high-value item such as a car. On the other hand, unsecured loans don’t involve any collateral. Since there’s no guarantee that the lender will get their money back, they usually come with higher interest rates. This is usually the only option available for borrowers with bad credit, so be aware of this before you apply.
Using a bad credit personal loan to boost your credit rating
So, bad credit personal loans come with higher interest rates, meaning you’ll be paying more than someone with a higher credit score. Naturally, the only way to get yourself out of this situation is to improve your credit score. How do you do that? Well, luckily, that bad credit personal loan could actually work to your advantage. By keeping up with your repayments, you’ll be able to boost your credit score, and get yourself back on track to a strong financial situation. This can be particularly useful if you’re looking to take out a mortgage, since poor credit could lead to your application being rejected outright by the bank or other lender. On the other hand, if you can show that you can even keep up with a personal loan with bad credit holding you back, then they will likely be happy to take your mortgage application on.
Further ways to boost your credit score
Keeping up with repayments on a bad credit personal loan isn’t the only way to improve your score, though. One easy way to boost your score, if you haven’t already, is to sign up to the electoral register. This proves that you live at your given address, and that’s something lenders like to see. You are a more stable borrower in their eyes if you are tied down to a single address. You should also avoid using your full credit limit if possible. That way, you’re showing that you are living within your means. Finally, make sure to regularly check your credit report, so that you are always completely clear about how your score is doing, and what you could do to further improve it.
As you can see, then, it is possible to get a personal loan with bad credit in the UK. This does mean that you’ll have to pay higher interest rates on your personal loan. If you stay on top of things, though, you’ll be able to boost your credit rating, and work your way up to more favorable terms and rates. Just make sure you look at all your options, and only take out one loan at a time so that you can keep up with the repayments.