Loans with poor credit: costs, checks and alternatives

How to compare loans with a poor credit history, check a lender and consider alternatives before taking expensive credit.

A low credit score does not make an expensive loan affordable

A lender’s branding, customer rating or fast payout does not establish that its loan is suitable for you. Terms such as “ethical” and “fair” need evidence; FCA authorisation is not an endorsement of a particular product or a guarantee of low cost.

Assess whether payments fit after housing, energy, food, council tax and existing commitments. If a loan would cover a recurring shortfall, seek free debt advice and check benefits or bill support before taking on another repayment.

Compare the total cost

Request the amount borrowed, APR, monthly payments, term, all compulsory fees and total repayable. Compare equivalent loan amounts and terms. A low monthly payment can conceal a longer, more expensive loan, and a subscription-based product can still have a substantial cost even if advertised as interest-free.

A representative APR is not necessarily the rate you will receive. Check the personal offer and any early-settlement terms. Published rates, lending limits and eligibility criteria can change. See MoneyHelper’s personal-loan guide.

Understand high-cost borrowing

Loans aimed at people with poor credit can carry high charges. The FCA’s price cap for qualifying high-cost short-term credit limits daily charges, default fees and overall cost, but it does not make those loans cheap and does not apply to every personal-loan product. Do not assume every longer-term loan is covered by the same cap. See FCA CONC 5A.2.

A lender using Open Banking to assess affordability still needs to decide whether repayments are sustainable. For example, Salad explains that it assesses bank transaction data with your permission. This does not make approval certain or establish that its loan is cheaper than every mainstream option. Check its current personal quote and eligibility rules.

Check the firm and the credit search

Use the FCA Register to check the firm, relevant permissions and contact details. Check whether you are dealing with a lender or a broker and whether any fee is payable. Be cautious if an unexpected caller asks for an upfront transfer to release a loan.

An eligibility check may use a soft search; a full application may use a hard search. Confirm which applies before proceeding. A statement that checking eligibility does not affect a score should not be read as a promise that the loan and subsequent payment history have no credit-file impact.

Consider alternatives

A credit union may offer a smaller loan on different terms, subject to membership and affordability. Community lenders may also be an option, but their rates vary and can still be expensive. Compare the actual cost and check MoneyHelper’s credit-union and community-lending guide.

If the money is for a bill or essential item, ask the relevant provider or council about payment support, grants or local assistance. Check eligibility for any benefits-related support before borrowing. These options are not available to everyone, but a loan need not be the first step.

If you are already struggling

Contact existing creditors and explain the difficulty. Ask what affordable support is available and how any arrangement affects charges and your credit record. Do not take a new loan solely to postpone asking for help.

Use MoneyHelper’s borrowing guidance and free debt advice to assess the whole budget. There is no lender that can be named the best choice for every person with poor credit.