How to get a loan with a low credit score

Understanding your options for securing credit when your score needs improvement.

• Even with a low credit score, you can find loan options by understanding which lenders specialise in lending to people with varied credit histories.
• Improving your application by including all income sources and choosing the right loan amount can increase your approval chances.
• Different types of loans have varying requirements, with secured loans often being more accessible for those with lower credit scores.
• Using eligibility checkers and pre-qualification tools, where available, helps you compare offers without creating multiple credit enquiries.
• Using ClearScore's free tools can help you understand your credit position and find loans that show your approval odds.

Getting a loan with a low credit score is possible in South Africa, though you may face higher interest rates and stricter terms. Lenders assess your overall financial situation, including your income, employment stability and affordability as required under the National Credit Act, not just your credit score. The key is understanding your options, preparing your application thoroughly and choosing lenders that work with borrowers across different credit profiles.

What is bad credit?

Whenever you apply to borrow money, lenders will check your credit report before they agree to lend you money. A credit report is a record of your behaviour when it comes to borrowing. It includes how much money you’ve borrowed, if you’ve paid it back and whether you’ve done this on time (we go into more detail about this in our article on credit reports).

If you have bad credit, it means you’ve probably struggled to pay back your debts, and a mark has been left on your report by a lender.

What are bad credit loans?

Bad credit loans are financial products specifically designed for people with lower credit scores or limited credit history. These loans recognise that your credit score doesn't tell the whole story about your ability to repay debt. Lenders offering these products typically look beyond your credit score to assess your current income, employment stability and overall financial situation.

Learn: What is a good/bad credit score? // How is your credit score weighted?

Traditional loans from major banks often have strict credit score requirements and may automatically reject applications below certain thresholds. Bad credit loans, however, use more flexible criteria. While you'll likely face higher interest rates to offset the perceived risk, these loans offer several key differences:

• More lenient credit score requirements
• Greater focus on current income and affordability
• Potentially smaller loan amounts initially
• Shorter repayment terms in some cases
• Additional documentation requirements to verify income

Why lenders offer loans to people with low credit scores

Specialised lenders understand that people with low credit scores represent a viable market. They've developed risk assessment models that look at factors beyond credit scores, allowing them to serve customers that traditional banks might reject. These lenders often charge higher interest rates to compensate for the increased risk, but they provide essential access to credit for people working to rebuild their financial standing.

Check your credit score and credit report

Before applying for any loan, you need to understand exactly where you stand. Your credit score gives lenders a snapshot of your creditworthiness, but errors on your credit report could unfairly lower your score. Check for incorrect information, such as accounts that don't belong to you or payments marked as late when they were actually on time.

Review your current financial obligations

List all your existing debts, including credit cards, store accounts and other loans. Calculate your total monthly debt payments and compare this to your income. This debt-to-income ratio is crucial information that lenders will evaluate, and understanding it helps you determine how much additional debt you can realistically handle.

Calculate how much you need to borrow

Be specific about your borrowing needs. Requesting too much money can lead to rejection, while borrowing too little might leave you short of your goals. Consider the total cost of what you're financing, including any fees or additional expenses that might arise.

Determine your monthly payment capacity

Look at your monthly budget to determine how much you can comfortably afford to repay each month. Remember to leave room for unexpected expenses and don't stretch your budget to its absolute limit. A sustainable payment amount is crucial for successfully managing your loan and avoiding further damage to your credit score.

Types of lenders that offer bad credit loans

Several types of lenders in South Africa cater to borrowers with low credit scores. Traditional banks offer personal loans across a wide range of amounts and evaluate applications based on income and repayment ability, not just credit scores. Specialist lenders focus specifically on borrowers with varying credit profiles, often providing flexible assessment criteria alongside their loan products. Alternative finance companies typically offer smaller loan amounts with fast approval processes, making them accessible for more immediate or modest borrowing needs.

How to compare interest rates and fees

When comparing loan offers, look beyond the monthly payment amount. The total cost of the loan includes interest rates, initiation fees and any other charges. Some lenders may offer lower monthly payments but charge higher fees overall. Always ask for the total cost of credit and compare the annual percentage rate (APR) to get a true picture of what each loan will cost you.

For instance, a representative Annual Percentage Rate (APR) for a personal loan in this category is approximately 34.05%, which reflects the higher risk profile and includes all mandatory initiation and service fees.

Understanding loan terms and repayment periods

Longer repayment periods typically mean lower monthly payments but higher total interest costs. Shorter terms require higher monthly payments but cost less overall. Choose a repayment period that balances affordability with total cost, ensuring you can make payments comfortably while minimising the total interest you'll pay.

Disclaimer: Affordability assessments are mandatory

Pre-qualification vs formal application

Some lenders now offer eligibility checkers or pre-qualification tools that give you an indication of loan terms. Future Finance, for example, allows applicants to check rates without affecting their credit score. Where available, use these tools to compare offers before submitting formal applications, which will result in hard credit enquiries. Keep in mind that not all comparison services are enquiry-free, so check the terms before proceeding.

Adding a co-signer or co-borrower

If you have family or friends with good credit who trust you to repay the loan, adding them as a co-signer can significantly improve your approval chances and potentially secure better interest rates. However, remember that co-signers are equally responsible for the debt, so this arrangement should not be entered into lightly.

Including all sources of income

Don't limit your income declaration to just your salary. Include any regular income from side jobs, rental properties, government grants or other reliable sources. Lenders want to see your full financial picture, and additional income sources can strengthen your application considerably.

Requesting an appropriate loan amount

Asking for too much money relative to your income is a common reason for loan rejection. Start with a smaller amount that clearly fits within your budget. Successfully repaying a smaller loan can help rebuild your credit for larger borrowing needs in the future.

Addressing negative items on your credit report

If you find errors on your credit report, dispute them with the credit bureaus before applying for loans. Even if negative items are accurate, having a clear understanding of your credit history allows you to address potential lender concerns proactively during the application process.

Personal loans for bad credit

Personal loans are versatile credit products that can be used for various purposes. Several South African lenders offer these loans to borrowers with lower credit scores, with loan amounts and interest rates varying based on your individual circumstances and the lender's assessment criteria. These unsecured loans don't require collateral but typically come with higher interest rates to reflect the increased risk to lenders.

Secured loans and collateral-based options

Secured loans require you to pledge an asset as collateral, which significantly reduces the lender's risk. This often makes approval easier and can result in lower interest rates compared to unsecured loans. Common types of collateral include vehicles, property or savings accounts.

Secured loans and collateral-based options

Secured loans require you to pledge an asset as collateral, which significantly reduces the lender's risk. This often makes approval easier and can result in lower interest rates compared to unsecured loans. Common types of collateral include vehicles, property or savings accounts.

Credit union loans

Some credit unions and community-based financial organisations may offer loans with more flexible criteria than traditional banks. These institutions often take a more personal approach to lending decisions and may be willing to work with borrowers who have experienced financial difficulties.

Applying with multiple lenders simultaneously

Each loan application typically results in a hard credit enquiry, which can temporarily lower your credit score. Multiple enquiries in a short period can signal financial distress to potential lenders and hurt your chances of approval.

Overextending your finances

Don't borrow the maximum amount a lender offers if it strains your budget. Choose a loan amount and repayment term that leaves room for unexpected expenses and doesn't put your financial stability at risk.

Ignoring your credit report errors

Failing to check and correct errors on your credit report before applying could result in unnecessary rejections. Even small errors can impact your credit score and loan terms.

Failing to disclose all income sources

Underreporting your income gives lenders an incomplete picture of your financial situation. Include all regular income sources to strengthen your application and potentially qualify for better terms.

• Check your credit report regularly, making sure all the information you expect to be there is present and correct.
• You can also read our five-minute checklist on how to take charge of your credit
• If you borrow money, pay it back on time and (if possible) in full each month
• Try to avoid using too much of your credit limit

Taking control of your financial future starts with understanding your options. While having a low credit score can make borrowing more challenging, it doesn't eliminate your possibilities. By comparing lenders, preparing your application thoroughly and choosing the right loan for your situation, you can access the credit you need while working to improve your financial health.

Ready to explore your loan options? Check your credit score for free with ClearScore, understand what lenders see when they review your application and find loan offers tailored to your credit profile.

Finding the right loan shouldn't feel like guesswork. With ClearScore, you can explore personalised loan offers from top lenders, all in one place, without affecting your credit score. Here's how it works:

1. Check your eligibility first See which loans you're likely to be accepted for before you apply. We use a soft credit check that won't impact your score or show up on your credit file, so you can explore with confidence.

2. Compare real, personalised offers No generic rates or estimates here. You'll see actual loan offers tailored to your credit profile, with transparent terms and no hidden surprises. Compare interest rates, monthly payments, and total costs side by side to find your best match.

3. Apply with confidence Once you've found the right loan, you can apply directly through ClearScore. Your credit score and report are available to track throughout, helping you stay in control of your financial journey.

Disclaimer: 'likelihood of acceptance' is not a guarantee of credit, and a full affordability assessment is required by law.

Why choose ClearScore for loan comparison?

• Free forever - No hidden fees or charges to use our comparison service
• Trusted lenders - Access updated offers from top lenders in the market
• Soft credit checks - Check eligibility without impacting your credit score
• Personalised matching - See offers based on your credit profile, not generic rates
• Track your progress - Monitor your credit score weekly to unlock better deals over time

Whether you're consolidating debt, financing a big purchase, or investing in your future, ClearScore helps you find loans that fit your credit profile and financial goals.

Compare loan offers on ClearScore

What credit score do you need for a bad credit loan? Bad credit loans are typically designed for borrowers with scores in the lower bands shown on their credit report, though requirements vary by lender. Some specialised lenders focus more on your current income and ability to repay rather than your credit score alone.

How quickly can you get approved for a bad credit loan? Approval times vary by lender, but many online lenders can provide decisions within 24 to 48 hours. Traditional banks may take longer, while some alternative lenders offer same-day approval for qualified applicants.

Will a bad credit loan help improve your credit score? Making on-time payments on any loan, including bad credit loans, can help improve your credit score over time. However, missing payments will further damage your score, so only borrow what you can confidently repay.

Can ClearScore help me find loans for bad credit? ClearScore provides free access to your credit score and report, helping you understand your creditworthiness before applying. The platform also shows loan offers you're likely to be approved for, reducing the need for multiple credit enquiries.

What documents do I need for a bad credit loan application? Most lenders require proof of identity, income verification (such as payslips or bank statements), proof of residence and employment confirmation. Some may ask for additional documentation depending on your specific situation.

This article provides general information only and does not constitute financial advice. Individual circumstances vary, and you should seek independent, professional advice before making financial decisions.