With around 18 million or 37% of Britons considered to have bad credit or a less than perfect credit score, this can make it difficult when trying to apply for personal loans, basic credit cards, or various household products on finance.
Your credit score is made up of multiple factors that determine your ‘creditworthiness’ as a customer. This includes basic information about yourself such as being registered to vote by submitting your name and address with the local council and how well you have kept up with bills and financial products such as loans and credit cards.
Your credit information is held and reported in real-time through the three main credit reference agencies in the UK, including Experian, Equifax, and CallCredit.
You receive a credit score automatically when you turn 18 and this can improve and remain strong by consistently keeping up with your loan and credit card repayments. However, start to miss your monthly repayments for your mobile phone, energy bill, and credit card and this credit score starts to fall and therefore getting future credit becomes challenging.
So Can I Get a Loan or Not?
Yes, you can get a loan with bad credit, since there are a number of lenders who are willing to take a view on adverse credit histories or they offer products that do not rely on having a good credit score.
One of these is a secured loan, which allows you to borrow money against a valuable asset such as a vehicle or property that you own in full or partially. If you are a homeowner, you could borrow money secured against your home, known as a second mortgage or second charge loan. This amount is smaller than your existing mortgage and becomes the second payment you make each month after your main mortgage.
To borrow money against your car is known as a logbook loan, where you temporarily hand over ownership of the logbook or V5 manual to the lender – and you receive this back once the loan has been repaid in full. You can usually borrow around 50% of the car, bike or van’s value.
It is still possible to get access to unsecured loans, whether you use a guarantor loan (charged at around 49.7% APR) or if you use an unsecured or personal loan, but this may come with different terms, as discussed further below.
What Conditions Are Usually Placed on Bad Credit Loans?
With bad credit loans, you should expect the interest rate charged to be higher, to reflect the higher risk of default for the customer. For example, credit cards for good credit customers range from 0% to 18% per month, but this doubles to around 36% for bad credit customers.
For personal loans with good credit, the rates start from just 3% APR, but with bad credit customers, you could be paying around 49.7% for a guarantor loan or up to 1,000% for a payday loan.
It is also common for bad credit loans to not only offer collateral but also to be longer-term, giving the customer a long period to pay off the loan and help them spread repayment. However, since interest is accruing daily, this does make the loan more expensive overall.
What Other Options Are There For Me?
If you have bad credit, there are loans available for you across payday, guarantor, and secured. It could be sensible to find some form of credit card or short-term loan so that you can pay it back and this will help rebuild your credit score over time. You should regularly be checking your credit score via the credit reference agencies or requesting a £2 credit report, just so that you can stay on top of your progress.
If you have been denied everywhere, you can always look at selling household items around the house that you do not use, such as CDs, books, and old clothes – or of course borrow money from family and friends.
But ideally, you want to maximise your financial freedom, so even taking on a little bit of credit and paying it back on time and doing this repeatedly can help build up your score and help you access a number of affordable products in the future.
