Legitimate Ways to Get a Personal Loan With Bad Credit


Ignatius Uirab

Money Savings advice guide to getting a loan with bad debt

If you have a bad credit score, you will need to work on improving your score to get approved by a wide range of lenders. You might also want to look for bad credit personal loans.

Getting a Loan With Bad Credit

Many lenders won't give people with a bad credit history a personal loan. When they do, the interest rate will be higher. You might still be rejected, or you may need a guarantor to co-sign the loan in case you can't pay.

Your credit score affects how likely you are to be approved for a personal loan. Lenders don’t want to take big risks, so they’re less likely to approve your loan application if your credit score’s poor or bad.

If you need to borrow money but have a bad credit score, your available options are limited.

Read on for more information about how to get a personal loan with bad credit.

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How Your Credit Rating Affects Your Loan Approval Rates

Your credit rating, or credit score, is a guide to your behavior as a borrower. This three-digit numerical figure indicates how good you are with money. If you always pay your bills on time, and repay your debts in full, your credit score is likely to be good. When you miss payments and fall behind, your credit score is likely to be lower.

The companies that you have accounts and debts with will report to credit reference agencies. Everything they report is used to build up your credit file, affecting your credit score.

When you apply for a personal loan, the lender will check your credit score. They’ll be able to see, at a glance, if you’re someone that they want to lend to. If your credit score is low, the lender will know that you’re more of financial risk. They’ll assume that you’re likely to miss payments and might not repay your debt in full.

If you have a good credit rating, most lenders should approve your application. With bad credit, your options are limited.

It’s important to note that lenders don’t always look for a perfect credit score. In fact, they make more money by charging extra interest when their debtors miss one or two payments. That said, lenders will want to get their money back without too much of a fight.

Someone with a bad credit score may have missed several payments and could have struggled to clear debts in the past.

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Improving Your Credit Score

If you have time to spare, your best course of action is to work on improving your credit score. Make sure that you pay your bills on time. Your credit score is constantly changing, and you should see improvements in a matter of months.

You might like to get a credit builder card, which you can use for smaller payments like your weekly groceries. By spending on this credit card and then clearing the debt straight away, you will start to improve your bad credit rating.

Applying for Bad Credit Loans

If you don’t have time to improve your credit score, you can apply for bad credit loans. These loans are often a lot more expensive, to balance the risk the lender takes. You’ll pay a higher interest rate for bad credit loans than others might pay with better credit scores.

With a bad credit loan your chances of approval are higher. Charging higher interest rates means lenders are more likely to make a profit on the money they hand out, so they’re more willing to take a chance and give you the money you’re asking for.

It’s always better to shop around for the best interest rate you can get, even if you’re worried about your poor credit rating. It may be that there are few lenders who would approve you, but a change of interest rate of just 5% can make a big difference.

Here’s a comparison of three different interest rates from poor credit lenders as an example:

Loan AmountDurationInterest RateMonthly RepaymentTotal RepaidTotal Interest
£5,00036 months40%£223.71£8,053.43£3,053.43
£5,00036 months45%£233.99£8,423.78£3,423.78
£5,00036 months50%£244.18£8,790.48£3,790.48
Calculations sourced by Money Savings Advice

You can save almost £400 just by finding a loan with a 5% lower interest rate, although if you can find a way to improve your credit score, you could avoid bad credit loans altogether and start looking at personal loans with interest rates below 20% or, eventually, below 5%.

Three Different Credit Referencing Agencies

There are three different credit referencing agencies in the UK. These are Experian, Equifax and TransUnion. You don’t have just one credit file, or just one credit score. Each agency holds their own file and gives you a credit score based on it. Some banks, lenders and service providers will report your actions to all three.

Others will report to just one or two, so different credit files may contain different information.

Lenders, likewise, choose which credit reports they refer to. Some will look at one, some will look at two and others will check all three reports.

It’s wise to know what all three credit files look like. If you know that one of your reports looks significantly better than the others, you can improve your chances of approval by finding a lender that will only check your best credit file. This information is usually available online.

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Making Too Many Loan Applications

When you apply for a personal loan, lenders leave marks on your credit file. Each mark shows that your credit file’s been checked, like a footprint that they leave behind.

After one lender has checked your credit file, the mark can stick around for three months. If you then apply again, the next lender to check will see the footprints that are already there.

Lenders can’t see if previous checks have resulted in rejection or approval. But, these footprints can reflect badly on you. Having your credit file checked too many times in quick succession won’t look good. This typically shows that you’re desperate for money and are applying for too many loans.

Marks on your credit file will further reduce your loan approval chances. Lenders will either assume that those before them wouldn’t risk it, or that you’ve taken on too much debt.

There are two ways to avoid the damage done by marks on your credit file. You should wait a few months between applications to be sure that they’ve faded away, or you can use a loan comparison website.

Personal Loan Comparison Websites

Some personal loan comparison websites will run a soft search on your credit file. They’ll act on behalf of a wide range of lenders, just to get an idea of your credit score. The comparison site can report your credit score to several lenders, so you don’t need to worry about each loan provider leaving a mark on your credit file.

Lenders can decide if they’re likely to approve your loan application, then report back to the comparison website with the value of the loan and the cost. Once you’ve chosen a loan that you’re likely to get, the individual lender can conduct a proper credit file assessment.

By using a loan comparison website, you’re limiting the damage to your credit file. A hard credit search will only need to be done when your application is almost complete, and only by a lender that has already said that they’re likely to approve your application. This saves you from several credit checks that result in a negative response.

Alternatives to Bad Credit Personal Loans

If you’re struggling to find a lender that will approve you with your bad credit score, consider alternatives like guarantor loans and secured loans.

Having a bad credit rating doesn’t mean that you can’t get the money you need. You’ll simply have to be a little more creative as you find ways to get a loan approved.

Only borrow what you can afford to pay back. Our trusted financial partners can help you to find a suitable loan to meet your needs, or can work with you to find other ways to get the money that you need.

Quick Personal Loan FAQs

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How Can Money Savings Advice Help You Reducing Your Debt?

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Ignatius Uirab

Ignatius is one of our leading financial specialists. With over eight years of financial experience, he has vast experience and knowledge of the financial sector. When he is not writing about how to make your money go further, he is a true family man.

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