Your credit score is a reflection of how you have used credit in the past and is used by lenders to determine how much risk you pose to them if they lend you money. In other words, they take a score based on how you have used credit in the past to judge whether you are likely to pay them back in full and on time. A bad credit score shows higher risk and many lenders won’t accept people with poor scores. However, that doesn’t mean you cannot get credit if you have a bad credit score, there are still options available to you.

Generally when talking about a loan we are referring to what is called a personal loan. Often for less than £25,000, personal loans are unsecured loans for a fixed amount which is repaid (usually in monthly instalments) over a fixed time.

The worse your credit score is the fewer loans will be accessible to you with the loans with the most preferable terms being reserved for those with better scores. The amount you can borrow may be limited by a bad credit score and interest on loans available to you will generally be higher.

Bad Credit Loans

Whilst loans with the best terms such as low interest rates may not be available to those with a bad credit score there are alternative options. “Bad credit loans” are available to those with less than stellar credit scores but the increased risk to the lender is offset by higher interest rates and lower limits. Designed with people with bad credit in mind the chance of being accepted for a bad credit loan is higher which reduces the chance of needlessly damaging your credit score by applying for loans you will not be accepted for.

Guarantor Loan

Often used as one of the options for people with a bad credit score guarantor loans require a guarantor, someone who is liable for the loan if you cannot pay it. A credit score is an indicator of risk to a lender and a guarantor loan uses higher interest rates and guarantors to offset some of the risk. Of course the guarantor is used as an additional level of risk mitigation for the lender but you should only look to take out a loan you can afford to repay and not rely on your guarantor as a “plan a”. However, you should also make sure that if the worst were to happen and you found yourself unable to pay the loan that your guarantor could make the repayments.

 

Whilst if you are looking for a loan now you won’t have time to fix your credit score in order to get the best loan options, you can compare your available options and find the best deal from the loans which are accessible to people with a bad credit score. However, don’t stop there, finding the best loan available to you is great but building your credit score to open up more options for yourself in the future is also important. We covered the topic of improving your credit score in more detail here.