Key takeaways

• Loans for bad credit are financial products specifically designed for borrowers with low credit scores or poor credit history.

• These very poor credit loans typically have significantly higher interest rates due to increased risk.

• Approval is subject to affordability assessments and individual lender criteria - there is no guarantee of approval.

What happens if you need to get a loan with bad credit? What are your options? Find out how to secure low credit score loans when you have low credit scores and discover ways to improve your approval chances over time.

Around nine million adults across the UK were estimated to have been turned down for credit or offered less than they applied for over a 12‑month period, according to research published in 2023 by the Money and Pensions Service.

When you apply for a loan, it may be the first time you realise you have low credit scores or problems with your credit history.

If this is the case - don't panic. There are a broad range of lending options available, subject to individual circumstances and affordability assessments including loans for people with bad credit that are purposefully designed for those with poor credit scores or problematic credit histories.

Here, we've put together some of the basics about having bad credit, what loans for bad credit are, and some tips on how you may improve your credit rating.

If you're struggling with debt, there are charities such as Step Change that can offer free debt advice and help.

You can also read our guide on some way to approach getting out of debt.

What is bad credit and why might you have a low credit score?

Whenever you apply to borrow money, lenders will check your credit reports and scores (also known as credit files) before they agree to lend you money.

Your credit report is a record of your borrowing behaviour - how much money you've borrowed, if you've paid it back and whether you've done this on time. Your credit score is an assessment derived from the information in your report. Credit reference agencies compile credit reports and may generate scores, but lenders use their own lending criteria and may use scores differently - so eligibility and decisions can vary from lender to lender.

You can read more about this here: What is a credit report?

If you have 'bad' credit, it means you've probably struggled to pay back your debts. Because of this, a mark will have been left on your report by a lender. This might be for a number of reasons:

• You haven't made the monthly repayments on time

• You've missed the repayments altogether

• You've been declared bankrupt

• You've entered into an Individual Voluntary Arrangement

• You've had a County Court Judgement (CCJ) awarded against you

What are bad credit loans and how do they work?

Loans for bad credit are specifically designed for people with low credit scores. Lenders offering these types of loans tend to charge higher rates of interest due to the greater risk.

As with most loans, you can get two types: unsecured or secured. The main difference is that a secured loan uses something valuable that you own (such as your house or car) as collateral for the debt. This means if you fail to make your payments, the lender keeps whatever this is - even if it's your home. Obviously this is a very big risk to take, especially if you're not sure you can make the repayments, so you should think this through very carefully.

Read more about the difference between secured and unsecured loans here.

Best loans for people with bad credit

Types of loans for people with bad credit

When looking for loans for bad credit scores situations, you have several options. Credit unions often offer competitive rates for members with poor credit. Debt consolidation loans can help manage multiple debts. Some lenders specialise in very poor credit loans with more flexible approval criteria.

Things to think about when it comes to loans for bad credit

Bad credit loans tend to be an expensive way of borrowing money. Before you take out this kind of loan, you should make sure you've considered all of your options. This might mean going to a credit union for a loan or looking at debt consolidation loans instead if you're trying to manage your debt.

Avoid applying for multiple loans at once as this could damage your credit scores and make it harder for you to be accepted by a lender. Instead, use a quotation search (known as a soft search) to see how likely you are to get a loan before you apply - these kinds of credit checks won't damage your credit scores.

If you do take out this type of loan you should try and pay it back as quickly as you can in order to avoid expensive interest rates.

How loans for bad credit can impact your credit rating

If you take out bad credit loans and you're able to make all your payments on time and in full, it may help improve your credit rating. It will show lenders you can borrow responsibly and be trusted to pay back your debt. This means if you need to borrow again you might be able to take out a loan at a much cheaper rate of interest.

On the other hand, if you take out a loan for bad credit and you fail to repay it, this may have a negative impact on your credit score - more so than if you had problems repaying a standard loan. This damage is likely to hinder your chances of being able to borrow again in the future.

What can I do to improve my credit score?

Unfortunately, the best loan rates and offers will only be given to people with high credit scores. The good news is: you can start to build up your credit scores at any time to get yourself on the right path for a cheaper loan and improve your chances of getting loans for bad credit scores situations:

You can find out more in our articles on how to help improve your credit score and factors that affect your credit score.

In short, here are some of the steps to boost your credit rating:

• Check your credit reports and scores regularly, making sure all the information you expect to be there is present and correct. You can also read our 5 minute checklist of things to look out for in your credit report.

• Sign up to the electoral roll - lenders see this as a sign you're more stable if they can verify where you live.

• If you borrow money, pay it back on time and (if possible) in full each month.

• Avoid using too much of your credit limit.

• Avoid applying for too much credit in a short space of time.

It's worth checking how likely you are to be approved for a loan in the 'Offers' section of your account before you officially apply. ClearScore is a credit broker, not a lender. Every time you apply for credit a 'credit application' search, or a 'hard search', is carried out and a mark is added to your report. If lenders see a lot of applications in a short space of time, they may view you as a riskier borrower and may choose to not lend to you.

Frequently asked questions about bad credit loans

Can I get a loan with very bad credit?

Yes, very poor credit loans are available from specialist lenders. These loans typically have higher interest rates, but they're designed for people who've been refused credit elsewhere.

What credit score do I need for bad credit loans?

Loans for low credit scores are available for various credit ratings. Each lender has different criteria, so it's worth comparing options to find loans for people with bad credit that match your situation.

How quickly can I get approved for loans for bad credit?

Approval times vary by lender. Some online lenders may provide initial decisions quickly, subject to verification of information and final underwriting approval, whilst others may take several days to process applications.

Start improving your finances: compare and apply for loans for bad credit today. Always make sure you can afford repayments.

ClearScore Technology Ltd. is an independent credit broker, not a lender. We will receive a commission if you take out a product, but we never rank offers based on that.