With bad credit, your options are limited to secured loans, guarantor loans, bad credit loans, and high-interest personal loans. Improving your score can help access better terms.
Having a bad score can make borrowing money more difficult, but it doesn’t mean you’re out of options.
Whether you need a personal loan, a secured loan, or a guarantor loan, there are still ways to access credit. However, lenders will look at your financial situation carefully.
Additionally, you may face higher interest rates and stricter borrowing limits due to the perception that you are a high risk borrower.
In this guide, we’ll cover everything you need to know about getting a loan with bad credit, the types of loans available, and how you can improve your chances of approval.
Understanding Bad Credit: What It Means
Lenders check your credit score before approving a loan. Your score is determined by factors like missed payments, high credit card debt, defaults, or County Court Judgments (CCJs).
Having a bad score generally indicates that you aren’t responsible with money that you borrow. These agencies consolidate information across different platforms to work out the score they assign.
What Counts As A Poor Credit Score?
Credit Reference Agencies (CRAs) such as Equifax, Experian, and TransUnion set scores that lenders use to determine creditworthiness. The metrics do change slightly per lender.
The table below from HSBC outlines general scores from different CRAs.
| CRA | Excellent | Good | Fair |
|---|---|---|---|
| Experian | 961 to 999 | 881 to 960 | 721 to 880 |
| Equifax | 466 to 700 | 420 to 465 | 380 to 419 |
| TransUnion | 628 to 710 | 604 to 627 | 566 to 603 |
What Types of Loans Are Available for Bad Credit?
If you have poor credit, your loan options may be limited, but there are a number of possibilities:
1. Secured Loans
A secured loan requires you to offer an asset (e.g., your home or car) as collateral. This reduces the lender’s risk, making approval easier. However, if you default on repayments, the lender can seize your asset.
Pros:
✔ Higher borrowing limits
✔ Lower interest rates than unsecured loans
Cons:
✘ Risk of losing your asset if repayments are missed
✘ Requires an owned asset (property, vehicle, etc.)
2. Personal Loans (Unsecured Loans)
Unsecured loans don’t require collateral, but they rely heavily on your credit score and income. For those with low scores, personal loan options are often limited and come with high interest rates.
Pros:
✔ No risk of losing personal assets
✔ Fixed monthly repayments
Cons:
✘ Higher interest rates for low score borrowers
✘ Lower borrowing limits
3. Guarantor Loans
A guarantor loan requires a trusted friend or family member with good credit to co-sign your loan. If you fail to make payments, the guarantor becomes responsible for repaying the loan.
Pros:
✔ Higher chances of approval
✔ Potentially lower interest rates
Cons:
✘ Risk to the guarantor’s score if repayments aren’t made
✘ Can strain personal relationships
4. Bad Credit Loans
Some lenders specialise in bad credit loans, offering small amounts with short repayment terms. These loans help those who need urgent funds but often come with extremely high interest rates.
Pros:
✔ Available even with very poor scores
✔ Quick access to funds
Cons:
✘ Very high interest rates
✘ Can lead to further debt if not managed carefully
5. Credit-Builder Loans
These are designed for people looking to improve their credit score. The lender holds the loan amount in a secure account while you make regular payments.
Once the term is complete, you receive the funds, and the payments are reported to credit agencies.
Pros:
✔ Helps improve score
✔ Can lead to better loan options in the future
Cons:
✘ You don’t receive money upfront
✘ Limited availability
6. Bridging Loans
Bridging loans are a short-term borrowing solution typically used to cover gaps in financing, such as buying a property before selling an existing one. These loans are secured against property and can be an option for those with bad credit, as lenders focus more on the value of the asset rather than the borrower’s score.
Pros:
✔ Quick access to funds
✔ Less focus on credit history – more on asset value
Cons:
✘ Higher interest rates compared to traditional mortgages
✘ Short repayment terms (typically 6-12 months)
✘ Risk of losing the secured property if repayment fails
How to Improve Your Chances of Loan Approval
Even with bad credit, you can take steps to increase your chances of getting a loan with better terms.
1. Check Your Credit Report for Errors
Mistakes on your report can unfairly lower your score. Use agencies like Experian, Equifax, or TransUnion to check for errors and dispute any inaccuracies.
2. Reduce Your Debt-to-Income Ratio (DTI)
Lenders assess how much of your income goes toward debt payments. A high DTI can make approval difficult. Try to pay down existing debts before applying.
3. Register on the Electoral Roll
Being on the UK electoral roll helps lenders verify your identity, which can slightly improve your credit score.
4. Avoid Multiple Loan Applications
Each hard credit check lowers your score. Use soft check eligibility tools to compare lenders without affecting your score.
5. Consider a Co-Signer or Guarantor
If your score is too low, a co-signer or guarantor with a good credit history can boost your chances of approval.
Should You Get a Loan with Bad Credit?
Getting a loan with bad credit is possible, but it requires careful planning. Always compare lenders, read the terms carefully, and avoid high-risk loans that could push you further into debt. If possible, work on improving your score before applying to unlock better options with lower interest rates.
By taking steps like checking your report, reducing existing debt, and choosing the right type of loan, you can improve your chances of securing a loan – even with a less-than-perfect credit history.
Need Expert Advice?
At Blue Square Capital, we specialise in helping borrowers navigate the world of bridging loans and alternative lending. If you’re struggling with bad credit but need funding, contact us today at [email protected] to explore your options.
