Personal loans can be a great and prudent way of funding a certain purchase and they can also be useful in cases of emergency.

That being said, getting approved for a personal loan with a bad credit score can prove to be a bit difficult.

In this post, I’ll be looking at what your approach should be when trying to secure a personal loan with bad credit as well as what other options you may have.

What should I Do if I have been Refused Credit Because of My Poor Score? 

If you’ve been turned down by a bank or a lender for a loan, then they must have ran a credit check on you.

You have the right to ask the lender about which credit reference agency they used to access your credit history. 

You also have the right to ask the lender about what the reason was for them refusing you and what specific information they based this reason on. Please note that while lenders are obligated to inform you of the reason for the refusal, they are not obligated to give you an elaborate explanation

Get a Hold of Your Credit File

Once you know which agency you used, you can approach the credit reference agency yourself in order to get a copy of your credit file

The first thing you should do is scour and analyse your credit file thoroughly in order to ensure there aren’t any mistakes such as duplicate entries or mentions of debts that you have already paid off.

If you find any errors within your file, you should write to the credit reference agency and ask them to correct it as soon as possible. 

The credit reference agency has 28 days to respond to your request.

During the agency’s investigation of your request, the relevant information within your credit file will be marked as “disputed”. 

Don’t Keep Applying to Other Lenders 

This is extremely important. You should not be seeking out and applying to other lenders if you have been turned down for a loan by one lender. 

Any loan applications that you make, whether they’re approved or not, will show up in your credit history. 

Having mentions of several different applications in a short time span will reflect very badly upon any lender that is assessing your application and it may negatively impact your credit score even further.

Many mentions of loan applications in your credit history can also affect the interest rate you are offered by a lender. 

Thus, it’s very important that you be very calculated and methodical with the lenders you approach and apply to.

Only apply to lenders where you feel you have a high chance of being approved. 

Applying to several lenders at once is never a good idea.  

bad loan credit

How do Bad Credit Personal Loans Work? 

Bad credit loans work pretty much in the same way as any other loan works.

You will approach a lender with your application, they will perform an affordability assessment on you and either approve your application or reject it. 

Unlike typical loans, your credit score does not hold as much weight when you’re dealing with a specialist lender that deals with giving loans to people that have poor credit scores. 

Instead, the focus is more on your current financial situation and whether or not you will be able to realistically pay back the money lent to you as part of the bad credit loan or not.

It’s important to note that a bad credit loan will typically have a much higher interest rate than a regular loan. 

This is because you pose a much higher risk with your bad credit score than someone with a good credit score would. So, lenders compensate by increasing the rate of interest in bad credit loans. 

As long as you can prove to the lender that you will be able to afford the payments towards your loan, you will have a good chance of getting your application approved. 

You can make your case stronger by providing as much documentation and proof about your finances and the money you have as possible. 

This would include salary slips, receipts, utility bills, etc. 

As long as you are able to effectively prove that you are capable of paying the money back, you will be able to get your bad credit loan application approved in no time. 

Another important thing to keep in mind is to never approach loan sharks when you’re looking for bad credit loans. They may seem friendly at first but they operate illegally and may charge you with ridiculous rates of interest. 

A good way to ensure you’re not taking a loan from a loan shark is to check whether the lender is authorised and regulated by the Financial Conduct Authority or not. 

What are some other Alternative Loans I Could Opt for If I Have a Poor Credit History? 

If you urgently need to borrow money and are able to afford the repayments but are having trouble finding a responsive lender because of your bad credit rating, then there are some alternatives that you could look towards in the UK. 

These are: 

Credit Unions 

Credit unions are a great option that you can look towards if you’re in urgent need of money and can’t find a lender to provide you with a loan. 

Credit unions are nonprofit organisations that aim to help people within their local communities or people that have something in common (for example, having the same employer or working in the same line of work, etc.) 

Members of credit unions pool their savings together in order to lend to one another. 

Interest rates among credit unions can vary but the law dictates that can be a maximum of 3% per month or 42.6% per year. 

If you’re in Northern Ireland, then the maximum limit per month is even lower (1%). 

Furthermore, there are no hidden charges, fees or penalties if you choose to make an early repayment and pay off the loan at an earlier time. 

An important thing to note with most credit unions is that they require you to save for a certain period of time before you’re allowed to borrow from them.

Thus, if you need to borrow money as soon as possible, then a credit union may not be the right choice for you. 

You can find a credit union in your area by going to

Budgeting Loans 

If you have a bad credit rating and are already obtaining certain benefits but require a loan, you may be able to apply for a budgeting loan from the Social Fund

These loans are typically interest-free and are much cheaper than any bad credit loan that you may be considering. 

Please note that budgeting loans are meant for people who need money for essential or unexpected expenses such as clothing, rent arrears, maternity or funeral expenses, household equipment, etc.

You will not get approved for a budgeting loan if you’re applying to it for a luxury purchase. 

You can apply for a budgeting loan at


Loans for bad credit are definitely available in the UK but they have several catches such as high interest rates and low loan amounts which you need to be aware of.

In the end, if you need a loan urgently, then looking at loans for bad credit is a good idea.

However, if you don’t need the loan immediately, I would suggest working on improving your poor credit score before looking for a loan.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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