What is a Bad Credit Personal Loan?
Bad credit loans allow people with a less than perfect credit history to borrow the money they need.
Because lenders see bad credit loans as a higher risk, some bad credit loans require your property to be used as collateral or 'security' on the loan amount.
Secured bad credit loans allow you to borrow the money you already own, but that is tied up in your property.
The 'available' money in your property is called equity, which can be worked out by taking the current market value of your home and then subtracting any outstanding mortgage or other loan secured on it.
Aside from homeowner or secured loans, there are other options available for borrowing money if you have a bad credit rating.
If you are looking for a bad credit loan to purchase a new or used car, most specialist car loan lenders can provide credit to people with a poor credit history. Car loans do not require you to be a homeowner or secured the loan on your property.
The other option available to people with a bad credit rating is a cash advance or payday loan. This option is only useful if you are looking to borrow a small amount of money in an emergency that you will be able to repay very quickly or when you next get paid.
Who can get a bad credit loan?
Most people who have a poor credit history, including CCJ's, mortgage arrears or defaults or other credit problems can take out a bad credit loan.
Whether you are accepted or not will be decided by the loan company.
Going via a loan brokerage may often return better results, as they are able to search through a number of different lenders to try and find you a loan.
- Who can't take out a bad credit loan?
If you have current credit problems or you are currently declared bankrupt you may not be able to take out a bad credit loan.
How do I know if I have a bad credit rating?
Late or missed credit repayments, mortgage arrears or defaults or County Court Judgements for non-payment of debt, can cause a bad credit rating.
If you know that you have a history of poor credit use, it is more than likely that you have a subsequently bad credit rating, especially if you have been turned down for credit by lenders.
To find out exactly what your credit score is like you can get in touch with a credit reference company like Experian.
Experian is a company that lenders use to help them decide whether they will give a customer credit. These companies can also tell you what your credit score is too.
You can view your free Experian credit report  here
How much can I borrow with a bad credit loan?
If you are looking to borrow a large sum of money and are a homeowner, the amount of money you can borrow is dependent upon the equity, or available money, in your property and also how much you can afford to repay each month.
Some secured loan lenders will allow you to borrow up to 125% of your property's value, this is called a 'little or no equity' loan option. However, if you have a bad credit rating some lenders may require you to have enough equity in your property for the loan.
If you are looking to purchase a car and you opt for a specialist car lender they will give you a quote of how much money you can borrow based upon your credit score and your financial situation.
Cash advance or payday loans will allow you to borrow up to £750. However, they will take into account how much your income is and how much you can repay when you get paid.
What can a bad credit loan be used for?
- Secured homeowner bad credit loans
Most, if not all, secured homeowner loans, even for people with a bad credit rating, can be used for any purpose.
Most people will look to take out a loan for home improvements, debt consolidation, purchasing a car, financing a wedding or holiday, among others.
The main purposes secured loans can usually not be used for are:
- Anything illegal
- Investing money abroad, e.g. in a property
- Any business purpose
- Car finance bad credit loans
Car finance loans are, as named, for purchasing a new or used car.
The actual car you can buy will depend on the car lender. Some lenders will also provide the car, though they do offer a very wide choice, other lenders will just provide the finance and allow you to choose the dealership you buy from.
- Cash advance and payday loans
Cash advance and payday loans can be used for any legal purpose.
However, it's important to remember that these loans are only suitable as last-resort emergency loans, and should always be repaid promptly.
How do I get a bad credit loan?
If you do have a bad credit rating it is advisable to apply for a loan with a lender or broker who advertises themselves as being able to help customers who have a less than perfect credit record.
Going with a loan broker who can help arrange a bad credit loan will not automatically land you with an enormous interest rate even if your credit score isn’t that bad. They will give you an interest rate based on your personal credit score and financial situation.
- Compare
When you know which type of bad credit loan you want to take out, i.e. a secured homeowner loan, a specialist car loan or a payday loan, you should compare at least 3 different bad credit loans before you decide which one to apply for.
When comparing loans remember to look at whether or not they can help people with a bad credit rating, do they offer loans for the amount you want to borrow, and how long can the loan be repaid over.
Remember that when comparing bad credit loans interest rates can be slightly misleading. The interest rate any loan lender quotes is a typical rate. That means that at least two thirds of all their customers get that rate or lower.
However, people with a bad credit rating will often get a higher rate, so if a company has a higher typical APR, it may just mean that they can help more customers with a bad credit rating - so don't be put off if one lender has a higher quoted rate than another lender.
- Apply!
Once you've decided on a loan lender or broker you can apply online via their website.
Once you've filled out the application form the loan company will get back in touch with you to discuss the available options with you.
Compare bad credit loans
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