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Bad Credit Options

How to Borrow Money if you have Bad Credit

If you have a bad credit history you may think you can't get any credit. You may already have been rejected by some lenders. But having a bad credit rating doesn't have to mean that credit isn't available. You may have to look a little harder and be prepared to pay a higher price for it, but it could be there.

Quick Start - Get your Options in 4 Quick Steps

We are constantly looking for new products that can help people in your position get the credit or finance they need. We've developed our Quick Start tool to help narrow down people's loan options. Some of these may suit bad credit histories. By answering just 4 simple questions you will be shown the summaries of products most likely to meet your needs. However, as the tool is not designed to explore individual credit histories you will need to decide which options to explore in more depth. Our website has more information about each of them so you can become better informed.

We'll think you'll like Quick Start - the quick way to start to find you loan options.

More about your Bad Credit Options

Quick Start will help guide you through the maze of options that exist. But there are additional things you should consider and things you can do to improve your financial situation for the future.

Is it wise to be borrowing if I have bad credit?

Well, it depends on:

  • what caused your bad credit situation and how poor your credit rating really is. What is recorded in your credit file?
  • your current income. Is it stable and is it enough?

The Cause of your financial problem

If it was a single event then you'll undoubtedly feel peeved that lenders are being picky now. May be you feel it wasn't your fault and that your capacity to handle debt is just fine.

On the other hand if your problem is linked to numerous financial issues, even if small, then this may be a sign that taking on more debt just isn't a good idea - at least not yet.

It could also be that you've been the victim of fraud linked to identity theft. If this is the case read our page on "your credit score".

How bad is your credit rating?

1) Bankrupt, on an IVA or are going through debt management programme?

Then you won't be able to get credit - full stop. In these situations you have to let the process complete naturally. Further on from this you should not be surprised if future lenders are rather cautious about considering further lending. But if you are back on your feet with a strong enough income then there will be options - such as a guarantor loan or a homeowner loan, perhaps.

2) Defaults or CCJs?

CCJs are worse than defaults but future lenders won't like to see either of these on your file. They will take a dim view of you not paying off debt that has become due. If you aren't able to do this then do you think you should be applying for more?

3) Some late payments on your existing debt?

These will be recorded on your credit file. If they happen too frequently then it will count against you. If you are frequently late with payments is this due to inefficient paperwork administration or does it reflect a real underlying financial problem?

4) Payday Loans

Just having these on your credit file is enough, in some instances, to indicate to a potential lender that you have problems balancing your budget. This may be particularly the case if you suddenly apply for a mortgage, but there are unsecured lenders (e.g. guarantor lenders) who will be much less concerned.

Your Current Income

To be able to obtain credit in the future you not only need to demonstrate that you are reasonable at managing your debt, but also that you have enough income. If you have a good, steady income and can show that you can afford the repayments on a new loan then your chance of getting credit is improved.

Should I consolidate my existing debts?

If your bad credit situation is down to having numerous smaller debts each with their own repayments and high charges then it may make sense to pay them all off with a new loan that should aim to reduce total monthly repayments while trying not to extend the total repayment period too far. Obviously you don't want to pay more interest over the life of the loan than you would have paid before, although this won't always be possible.

Depending on the total amount of debt you already have you may be able to use an usecured loan to do this (e.g. a guarantor loan or a standard unsecured loan - depending on your credit history). Larger amounts could be covered by a homeowner loan if you own your home, but be very careful about doing this as the loan is secured on your property. See our section on 'homeowner loans' where we cover this in more detail.

If you are thinking of consolidating existing debt you should be aware that you may be extending the term of the debt and increasing the total amount you repay.

Should I seek debt advice instead?

If you have debt but you feel your finances are under control then you probably do not need debt advice. You may even feel that you have the capacity to cope with borrowing more. However, if you are falling behind with some bills and credit commitments or really struggling more than this then it is probably safe to say you need to seek help or advice.

It is certainly the case that if you are struggling to pay what you owe the first thing you should do is tell your lender(s) and others you owe money to (e.g. utility companies). They are obliged to agree an alternate repayment plan to ease the pressure on you.

At the same time you should get advice from one of these organisations that will provide you with access to free support:

You are not alone - it has been estimated that 3 - 4 million households in the UK need debt advice. Free advice is out there so please use it.

Affordability & responsible lending policies

It's good to know that lenders are raising standards thanks to regulation and oversight from the FCA. One of the things lenders are now obliged to do in more depth when considering applications for credit, is to ensure that you can genuinely afford the repayments. With indebtedness levels in the economy remaining high and disposable incomes continuing to be squeezed this is more important than ever.

So, you should expect to have to provide information to any future lender about your income and your outgoings. Lenders will discuss your loan options in detail to help develop a repayment plan that will work for you. But if it is apparent to the lender than the loan is unaffordable they will tell you.

There is clearly no virtue in lending money if there is a significant risk that it will simply make a person's financial situation worse.

Your credit file, your credit rating and your credit score

It is worth obtaining copies of your credit files to discover what they contain. It is important to see that the information held about your financial affairs is correct. It is also important to check that no one has been seeking credit in your name - so-called identity fraud.

You can find out much more about this in the "your credit score" section. It also explains how you go about improving your credit file so that getting credit in the future is easier and cheaper than it may be today.

What does a bad credit loan cost? Representative APRs

There is no such thing as a "one size fits all" bad credit loan - instead there are various types of loan where the lenders may be prepared to accept applicants with various degrees of credit problems. You are likely to find that the APR% you have to pay is higher if your credit file contains issues.

Some of the loans that are priced to reflect extra risk and that may be available to those with impaired credit include:

Also we have access to some standard unsecured loans where the rate offered depends specifically on the level of risk the lender judges the applicant to be - so the rate offered will be in the range of 30% to 100% APR dependent on the risk. If you are a homeowner there may also be secured loan options.

As ever, be aware that loans are also subject to tests of affordability.

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