Unsecured loans for bad credit

You might be struggling to get a loan if you have a bad credit rating. But it can still be possible for you to take out a loan. Specialist lenders offer options for people with bad credit scores.

In this post, we will guide you through unsecured loans for bad credit. You will find information on:

• What unsecured loans are
• What bad credit is
• Things to remember with unsecured loans
• Eligibility criteria to take out a loan
• Some benefits and drawbacks of unsecured loans
• Other alternative options

What are unsecured loans for bad credit?

Unsecured loans, also known as personal loans, are usually useful for a number of cases. You may need a small amount for your car repair, emergency expense or going through other life changes. Unsecured loans are not secured against any of your assets like your car or home because they are usually a small amount of money. But lenders will assess your credit rating to decide how much money you can borrow.

If you have a bad credit rating, lenders can perceive you as a higher risk. This may make it more difficult for you to access loans.

What is bad credit?

When you have a bad credit rating, credit reference agencies (CRAs) judge your credit history negatively.

Some factors that may contribute towards a negative credit history are:

• late payments,
• missed payments or,
• you were unable to repay a loan in full.

You may also have an individual voluntary agreement (IVA), a debt relief order (DRO), or a County Court Judgement (CCJ). 

You could also be considered to have bad credit if you are young and have been unable to build a credit history or if you’ve moved to the UK recently.

Understanding your credit in detail

You can get a free credit search which gives you results from 3 separate credit agencies. Click for a free Credit Search. This tells you what the lenders see and helps get brokers like us on the right track immediately. Most lenders don’t do their own credit search until much later. You can get your free credit search here. It’s free for 30 days but remember if you want to cancel it as it costs £14.99 per month thereafter – Ad

Things to remember

Since personal loans are not secured against any of your assets, they usually have higher interest rates compared to secured loans.

A bad credit rating could mean that you’re limited to the amount you will be able to borrow. If you have a negative credit rating, there are other options to borrow money. Some credit cards can accept people with bad credit ratings. We explore these options in the last section of this page.

Even though you may not be able to borrow as much money with a small unsecured loan, it is considered a less risky option. But this doesn’t mean an unsecured loan has no risks at all. You need to keep up with your repayments, otherwise there could be serious consequences. If you receive a County Court Judgement (CCJ) against you, it will negatively impact your credit rating, making it very hard to find the cheapest unsecured loans in the future.

Ensure you have budgeted before you take out a loan. And you know exactly how much you need to pay towards your repayments per month. Also, the longer you take to pay back the loan in full, the more interest you will incur.

Eligibility

To take out an unsecured loan, you will have to meet certain requirement criteria. Every lender will have different requirements.

Most lenders will need you to be at least 18 or 21 years old and a UK resident.

When you apply for a loan, you will need to disclose your personal information with details about your finances. These include:

• Name
• Address
• Date of birth
• Contact details
• Living situation (homeowner or tenant)
• Income
• Employment status

Pros and Cons of unsecured loans for bad credit

Before applying for an unsecured loan for bad credit, it’s worth considering some benefits and drawbacks of the loan so you can decide whether it’s the right fit for you.

Pros

Unsecured loans could positively impact your credit rating. Since your credit score is a way to assess your reliability in making payments on time and in full, your rating could be positively impacted. You will not see any improvement in just applying and being accepted for an unsecured loan. Keep in mind that you will have to pay your loan on time and in full. You may then see a positive change in your rating.

You could also use an unsecured loan as a debt consolidation loan. This can help you put all your loans into one and possibly simplify your finances by making only one payment every month.

Unlike secured loans, you’re not at risk of losing any of your assets if you cannot keep up with repayments with unsecured loans. However, if you cannot make the required payments, you may face penalties. Missing your repayments or failing to pay the loan back on time or in full will mean the lender will try to recover their losses.

You could have penalty charges on your loan and increased interest rates. The lender can begin legal action and you could receive a County Court Judgement (CCJ). This will impact your credit rating, likely making it much harder to borrow in the future.

Cons

Unsecured loans can come with higher interest rates compared to secured loans. Some can even have early repayment charges, which can be problematic if you’re able to pay back sooner. It’s essential to decide exactly how much you need. You can then compare the interest rates of different lenders for your specified amount. This way you could find the cheapest unsecured loan.

Other available options

While it’s possible to get an unsecured personal loan with bad credit history, you might struggle to find a suitable deal. You may be asked to pay a higher interest rate, or you may be unable to borrow as much as you’d like.

In this case, there could be other loans that better suit your needs. Other alternative options are:

Secured loans

If you struggle to get an offer on an unsecured loan, you may be eligible for a secured loan. You will have to place an asset as security, like your home or car. This way, the lender knows they’re able to get their money back if you can’t repay the loan in full.

Overdraft

If you need a temporary amount and can pay it back within a short period, you could consider an interest-free overdraft on your current account. Most banks won’t offer more than £500 unless you’re a student.

Credit cards

Credit cards are useful if you need a small sum of money for the short term. Some credit cards offer 0% interest in borrowing, while others offer 0% balance transfer for a fee.

Guarantor loan

You could try a guarantor loan, where a friend or family member guarantees to pay your debt if you stop making repayments.

Understanding some important things about unsecured loans for bad credit is essential. You can make an informed decision based on several factors to assess whether an unsecured loan is right for you and your circumstances. To assess if an unsecured loan is suitable for you, carefully consider its pros and cons. You also need to identify exactly how much money you need to borrow. If you still struggle to find a suitable unsecured loan, perhaps you can consider alternative options.

Finding an Unsecured Loan Lender

If you already know that you want an unsecured loan, but are struggling to find a lender, click the button below to go to our quick and easy personal loan and mortgage guide. It will help you understand how you look to a lender, and how your circumstances match up to potential lender criteria.

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