Bad Credit Loans - Complete Breakdown with Guide, Tips, Advice, FAQs & More

There are a number of aspects that lenders look at when assessing loan applications, one of them being your credit score.

If your credit score is in a bad condition, your chances of being approved for a standard loan application are slim to none. 

So, is it impossible for you to get a loan if you have bad credit? Not necessarily. This is where bad credit loans come in.

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What are Bad Credit Loans?

Bad credit loans are loans that are specifically aimed at individuals who have poor credit scores and cannot find an approval for their loan applications among traditional lenders. 

When you apply to a lender that is offering such loans, your credit score won’t be at the forefront of what the lender looks at in order to reach a decision.

Instead, your expenditures and income will be looked at in order to assess whether you will able to afford the repayments or not.

When it comes to poor credit loans, if you can prove with certainty that you will be able to afford the monthly repayments comfortably, you have a very good chance of getting your application approved.

That being said, there are some disadvantages of taking out a bad credit loan which you definitely need to be aware of.

Higher Interest Rates

Firstly, a bad credit loan will typically have a much higher interest rate than that of any standard loan. 

This is, of course, because of your low credit score. Your poor credit history makes you a high-risk borrower for the lender providing you with the loan. So, in order to compensate for this, you will be charged a much higher interest rate.

Lower Amounts to Borrow

Secondly, the amount of money you will be able to borrow using a bad credit loan will typically be much lower than that of any standard personal loan. 

Thus, if you are in need of a much higher amount of money than what any bad credit loan can offer, then your only option would be to spend a few months improving your credit score so you can qualify for a standard loan.

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What Are Some Things to be Aware of When Applying for Loans with Bad Credit?

Beware of Loan Sharks

The very first thing that you should keep in mind is to beware of loan sharks.

Loan sharks are lenders that operate illegally and prey on vulnerable individuals with bad credit. 

They will lure you in by their friendly manner and first and they might even offer you a rate that’s too good to be true. 

Later, they might increase the interest rate to ridiculous amounts and they might even threaten you with violence if you are unable to pay up. 

Steer clear of loan sharks at all costs.

One way to be sure that the lender you’re dealing with isn’t a loan shark is to ensure they are authorised and regulated by the Financial Conduct Authority (FCA)

Lenders regulated by the Financial Conduct Authority are operating legally and they also have to abide by their set guidelines which ensure that you are treated fairly.

Secured or Unsecured?

One more thing to keep in mind is that there are mainly two types of loans for people with a bad credit history: secured and unsecured.

Secured loans for people with a bad credit history are usually preferred since putting up an asset as collateral would mean that you will most likely be charged a lower interest rate. 

You can also negotiate larger amounts of money when it comes to a secured loan.

That being said, opting for a secured loan with a bad credit history can definitely be risky.

If you start failing to meet your repayments, then whatever asset you put up as collateral could be repossessed and sold off by your lender.

Thus, you should never opt for a secured loan if you’re unsure about whether or not you’ll be able to make the repayments every month in a punctual fashion or not. 

When it comes to unsecured loans for bad credit, you may not be able to secure a favourable rate of interest and the amount of money you can borrow may not be that high either.

However, the consequences of failing to make payments towards an unsecured loan are far less severe than that of a secured loan.

Hence, you’ll have to weigh your options and look at what your needs are.

If you want to borrow a large amount of money, then you’re going to have to opt for a secured loan. In that case, you’ll have to make sure that all your finances are in order to ensure you’ll never fail to make monthly repayments. 

If your finances are shaky, then you may want to steer clear of secured loans and opt for an unsecured loan. However, that doesn’t mean that you shouldn’t get your finances in order at all when opting for an unsecured loan. 

Even when applying for an unsecured loan, you’ll be required to prove that you’ll be able to make the payments comfortably.

Can I Get a Loan if I’m Self-Employed with Bad Credit?

If you’re self-employed and have bad credit, then you may find it more difficult to get a loan approved for yourself. 

This is because lenders are typically looking for a stable source of income among applicants and the inherent nature of being self-employed means that your income won’t really be stable.

However, if you are able to prove that you have enough disposable income each month to make your payments towards the loan, it’s likely that you’ll be able to get your application approved. 

For more advice on how to get a loan when you’re self-employed and have a bad credit history, you can click here.

Can I Get a Mortgage with Bad Credit?

You can definitely get a mortgage with bad credit but your options will be limited.

You will most likely be offered mortgages that have higher rates of interest and the amount of money you’ll be able to borrow in order to fund your property will also be lower. 

It’s a good idea to look up a bad credit mortgage calculator online in order to get a rough estimate of how much extra money you will be paying as interest.

Can I Get Approved for a Loan if I’m Unemployed with a Poor Credit Score?

It’s very difficult to secure a loan when you’re unemployed and have a poor credit history but it’s definitely possible.

Most traditional banks and lenders will turn you away so you’re going to have to look for specialised lenders that specifically cater to individuals who are unemployed.

Always be sure to check that whatever lender you’re approaching is properly regulated and authorised by the FCA to lend you money.

For more information on how to get approved for a loan when you’re unemployed and have a poor credit score, click here.

Can I Get Approved for a Loan as a Young Adult?

The main problem you’re going to run into as a young adult looking for a loan is the fact that your credit score is going to be non-existent. 

This is worrying for lenders as they’ll have no way to estimate how responsible you are with your finances. 

So, you have a couple of options: look for specialised lenders that cater to young adults looking for loans or spend some time building your credit rating and then approach a traditional lender. 

I’ve written a detailed post about Loans for Young Adults in the past which you can check out.

Are Personal Loans for Bad Credit Common? How can I Acquire One?

Personal loans for individuals with poor credit are fairly common and you can definitely find lenders that specialise in such loans just through a quick online search. 

You have to be careful when dealing with such lenders, however, since they have fairly high interest rates and some also have hidden additional charges which you may not be aware of.

For more information on Bad Credit Personal Loans in the UK, you can click here.

How do Instalment Loans Work?

Most loans are instalment loans. In an instalment loan, you pay back the money in monthly instalments over the course of a certain duration. 

This duration could be anywhere from 6 months to 30 years. 

One of the prime examples of instalment loans is a mortgage which can last 20 to 30 years. 

I’ve written about Instalment Loans in the past as well as how they work and what your approach should be when applying for one.

How can I Find Affordable Loans for Myself?

Finding affordable loans with a credit score that’s in bad shape can be very difficult as you’ll most likely only be offered loans that have high interest rates.

That being said, there are many different approaches you can take in order to reduce the overall cost of the debt which you have to pay back. 

For more information on affordable loans as well as ways to reduce the amount of money you have to pay back, click here.

Conclusion

Bad credit loans are definitely available to people that want them but you have to be careful when opting for one since they do have high rates of interest.

As long as you manage your finances well so that you can make the repayments each month, such a loan can definitely be a great way of funding important purchases or for any emergency expenses which you may have.

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