A bad credit rating can feel like the end of the world when it comes to trying to arrange new finance. Millions of people in the UK have issues with their credit rating and yet, despite the volume of people this affects, we still believe that credit score problems mean that no lender will touch us. As personal finance has evolved to take into account the way the world is now, this is simply no longer the case. There are now loans tailored to people with credit problems. If you have a bad credit rating then consider these five loans as they are designed to help anyone without a perfect credit score.
1. Guarantor loans
The idea behind guarantor loans is that they provide someone with a good credit score with the opportunity to help someone with a bad credit rating. A guarantor will essentially provide an insurance policy to a lender – if you can’t repay the loan then the guarantor agrees to do it for you. With a guarantor supporting your application, a lender is less likely to place so much reliance on your credit score and this makes it much easier to get accepted for a personal loan if you have a bad credit rating. Guarantor loans are available for £100 to £15,000 and can be borrowed for between six and 84 months, depending on whether you’re looking for long or short term borrowing.
2. Payday loans
If you have a bad credit rating then acceptance for payday loans is not guaranteed. However, the difference with this type of loan is that the amount borrowed is often relatively small and the repayment term is short (a month). Payday loans lenders will usually make a decision about whether or not to lend on the basis of the income you have available to repay, so as long as you can show you’re employed or have an income to cover the repayment, a bad credit rating won’t necessarily stop you from being able to borrow. You could borrow up to £1,000 with a payday loan, repaid in a month. But needless to say you should these short term loans with great care.
3. Homeowner loans
If you own a property then this is another way in which you can boost your chances of getting finance, regardless of your credit score. Most lenders are willing to overlook credit problems if you have a solid income and a significant asset like a house or an apartment and you’re willing to offer this as security for the loan. This basically means that you agree to allow the lender to sell the property if you cannot repay the loan. Although this may seem a scary prospect, as long as you’re only borrowing what you can afford to repay then this just gives the lender the reassurance it needs to be able to lend. Homeowner loans are available from £5,000 – £250,000+ depending on the property that you own, the equity in the property and also the income that you have.
4. Car finance
Where the purpose of borrowing money is to pay for a new car or other vehicle, car loans are an obvious option. Around nine in every 10 cars in the UK is now purchased using car finance – most often a Personal Contract Purchase – and if you don’t have a perfect credit score then this doesn’t necessarily have to affect your application. Lenders are often more willing to overlook credit problems – especially if they are not recent – when it comes to car finance, as there is an asset involved. Just like homeowner loans, if you are unable to pay for car finance, the lender can sell the car to retrieve their cash. In practice, this doesn’t happen that often but it gives the lender security against the doubt that may exist over lending to someone with bad credit. Car finance is typically available for £1,000 to £50,000, repaid over two to five years.
5. Doorstep loans
Many people who have been refused credit by mainstream lenders find they have more success with doorstep loans. The personal nature of this type of lending means that everything is done face to face – the application is online but after that the loan amount and the terms are discussed with a local agent who comes to your home. Payments are made face to face too – this takes the pressure off and makes this a friendlier type of finance and one that lenders are more able to keep track of. Doorstep loans are available for amounts between £100 to £2500.
How do I decide which loan is right for me?
Good question. As with any decision it pays to do your research. You will need to consider:
a) how much you need to borrow
b) how long you want top borrow for
c) what you want to borrow the money for
d) whether you can offer an asset or guarantor as security, or whether you are prepared to
e) what your income is compared to your expenditure – for affordability purposes.
You can use our QuickStart tool to help do some of this for you, but you should take time to explore our website to find out more about your options.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley