What's the easiest loan to get with bad credit?

Man thoughtfully looks at his finances

When you’re applying for a loan, the potential lender will run a few checks on your identity and financial history to determine their risk. One of the easiest and most reliable ways for them to judge your creditworthiness is to look at how you have handled debts and bill payments in the past. You can find this information in your credit report.

High credit card debt, missed household bills and defaulted loans will all affect your credit score and make you a higher risk. As such, having a bad credit score and/or report can make finding a loan difficult, but not impossible. 

What counts as a poor credit score?

When making a decision on a loan application, lenders will usually refer to a Credit Reference Agency to find out a customer’s credit score. A range of financial and personal data will be considered and ultimately contribute to the final credit rating. In the case of Equifax, you will receive a score from 0 to 1000.

The scale is divided into five ranges:

  • 811-1000: Excellent

  • 671-810: Very good

  • 531-670: Good

  • 439-530: Fair

  • 0-438: Poor

If your score is over 670, you probably won’t have too much trouble getting credit, as you’ve proved your ability to repay loans in full. People with ratings below 580 might struggle to find a lender, or will have their loan choices restricted. For example, they might only be eligible for small secured loans with higher interest rates. 

However, it is still possible for people with low credit scores to have successful loan applications with particular lenders and products. 

What’s the difference between secured and unsecured loans?

Secured and unsecured are the two main types of loans available from most lenders. Here’s how they’re defined:

  • A secured loan requires you to pledge something as collateral against the money you’re borrowing. The lender can then take possession of that collateral should you fail to make the agreed repayments. For example, a mortgage is a secured loan. Although the risk of your home getting repossessed is rare and a last resort, it is still a possibility for those who miss their payments. 

  • An unsecured loan is offered to borrowers who present less of a risk. It will be based solely on your credit history, proof of income and other financial circumstances. However, even if you have a relatively good credit history, some lenders might attach a guarantee to their offer, especially if you’re trying to borrow a lot of money. 

Is it possible to get a loan with very bad credit?

It depends on just how bad your credit is. If you’re on the borderline of a good score, you might have to shop around and compare loans to find the best deals. 

If it’s very bad, then you’ll have to take steps to improve your credit score. Depending on your financial situation, you may need to spend a period of time making sure you never miss a bill or credit repayment, putting yourself on the Electoral Roll and avoiding County Court Judgments (CCJs). 

One factor that can also stand in your way is having no credit history at all - this is also known as a ‘thin file’. You might think never taking out a credit card or loan would be a positive, but it doesn’t give lenders much credit information to work with, making you an unknown risk.

A solution can be to take out a credit card and use it for regular spending, like groceries, bills and fuel, while making sure you pay it off in full every month. If you do this, you’ll have built up enough evidence of good financial behaviour which could positively impact your score and make you eligible for better loans and mortgages

Some banks even offer specialist credit-building cards, where the interest rates start high and gradually fall as you cement your financial reputation. With higher interest rates, a consumer is encouraged to to pay off the balance in full each month to maximise the impact on a consumer’s credit score.

What loans can a person with bad credit get?

If you fall into the “poor credit” category, it doesn’t block you out of lending altogether. However, the amount of money you can borrow, the competitiveness of interest rates and the types of products you’ll be approved for may be limited. 

Secured loans are one option, as they put something you already own against the money you’re borrowing. But there are also:

  • Personal loans: certain lenders will offer personal loans to those with bad scores. These put a strict limit on how much you can borrow and usually have high interest rates but can be a good option if you know you can pay it back quickly.

  • Guarantor loans: this is when someone you know (a guarantor) promises to pay off the debt if you’re unable to. They will be credit checked and if they are considered low risk, the loan can be granted to you. If you go for this option, make sure the guarantor can make repayments in the event you can’t. 

When searching for potential loans, find out whether it will leave a soft or hard search on your credit report. A soft credit search will show how likely you are to be accepted for different products without having a further impact on your credit score compared to a hard credit search.

Can you get a loan with extremely bad credit?

If your credit score is towards the bottom of the scale, you are going to find it very hard to get any kind of loan or credit card from a bank or reputable lender until you improve it. Though payday loans and pawnshops may be tempting options, the rates are huge and put you at risk of falling further into debt.  

However, there are lenders that specialise in bad credit loans with products that cater to customers who have poor scores. Loans for bad credit tend to be small and with short repayment terms. They may also include co-signed or joint loans, where another individual is sharing or guaranteeing that the loan will be paid back in full. 

Can I get a loan with very bad credit in the UK?

The UK has a well-regulated financial services sector, so there’s a complete range of products available for borrowers at all points on the credit score scale. 

If you’re scouring the internet for deals, always check if the lender is listed with the Financial Conduct Authority (FCA). This will guarantee that they are legitimate and will treat you fairly. It’s important to be aware of the risks if you do decide to apply for a loan with a lender that is not FCA approved.

How can you borrow money if you have bad credit?

If you’ve got bad credit and need the money quickly, you’ll have to go to specialised lenders. If you can wait a few months, taking steps to improve your credit score and improve your report will give you more options when you finally apply. Plus, it’ll save you money with competitive interest rates, and might allow you to borrow more.

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