If you’re currently in possession of a less than ideal credit rating, then you’ll know first hand just how difficult it can be to obtain a loan. Even if you are able to get a loan, then it’s likely that the respective interest rate will be sky high – fully in-line with the higher-than-average risks faced by the lender.
However, it isn’t all doom and gloom, as there are still a plethora of UK lenders out there that are willing to offer competitive loans to those with bad credit. With that being said, we’ve created the ultimate guide to the Best Bad Credit Loans of 2019. Not only will we explain how bad credit loans work, but we will also list 3 of the best providers currently in the market.
How do bad credit loans work? Read our step-by-step guide
The bad credit loan process works largely the same as any other loan application. However, if you have never applied for a loan before, or you simply want a refresher, be sure to check out the step-by-step guide outlined below.
Step 1: Find a loan provider
First and foremost, you will need to find a bad credit loan provider that meets your individual needs. The easiest way to do this is to scroll down to the section below and review the three providers that we have recommended.
Step 2: Start the application
Once you have found a suitable lender, you will then need to start the application process. In the vast majority of cases, the entire application can be completed online or via your mobile phone in a matter of minutes. Initially, you will need to enter the amount of money that you wish to borrow, and for what length of time.
Step 3: Enter your personal information
At the next stage of the application process, you will be asked to enter some personal information. This remains constant across the board, meaning that you will need to provide your full name, home address, previous addresses, date of birth, national insurance number, telephone number, and email address.
Don’t forget, the lender will need to verify your identity with the credit agency it uses, so make sure that the information is accurate. If it can’t be verified, then you might be asked to submit supporting documentation.
Step 4: Enter your financial information
After you have provided your personal information, the lender will then ask you some questions regarding your financial standing. This will initially include your employment status, how much you earn, how long you have been employed with the company, and how often you receive your salary. You will also need to stipulate whether you are a homeowner or rent.
On top of providing information linked to your income, the lender will also ask you some questions about your current relationship with debt. This will include what credit-based products you currently have outstanding. Finally, you will also need to stipulate why you need to borrow the funds.
Step 5: Enter your bank account details
If your application is approved, your loan funds will be transferred to your UK bank account. As such, the lender will ask you to enter the name of your bank, account number, and sort code. This is also used to verify your identity and to prevent fraud.
Step 6: Review the lender’s decision and if applicable, loan offer
Once you have entered the above information, the lender will then verify the data against third-party sources – including its preferred credit rating agency. This usually takes no longer than 30-60 seconds, so once the page loads you will be informed whether or not your application was successful. In some cases, the lender might require supporting documentation surrounding your identity and/or financial standing.
Nevertheless, if your application is approved on the spot, you will then be able to review your loan offer. Known as a pre-approval offer, this will outline how much the lender is willing to lend you, and at what rate of interest. If you are happy with the offer, you can then proceed to the final stage of the application.
Step 7: Sign the digital loan agreement
The final stage of the bad credit loan application will require you to sign the loan application form. As the entire process is completed online, you can sign the agreement digitally. Once you do, the lender will then confirm the loan with you via email. In the vast majority of cases, the lender will then forward the funds to your specified bank account within 48 hours.
Best 3 bad credit loan providers
If you have read our guide up to this point, then you should now have a really good idea of what a bad credit loan is, and how they work. If you’re now ready to make a loan application, but not too sure which lender to go with, we have outlined to best 3 loan providers of 2019.
Before we list our recommended providers, here’s a breakdown of what we typically look for in a bad credit lender.
Criteria used to rank the best bad credit loan providers
❓Lenders with the most competitive APR rates
❓Lenders that allow you to complete the entire application online
❓ Lenders that are transparent on their fees
❓ Lenders that consider credit profiles of all shapes and sizes
❓ Lenders that do not charge high late payment fees
What is a bad credit loan?
In its most basic form, a bad credit loan is simply a conventional loan that allows UK consumers to obtain a loan when they are in possession of bad credit. At the other end of the spectrum, those with a good credit profile will not only be accustomed to the best loan offers, but the underlying APR rate will also typically be very low. On the contrary, bad credit loans will often come with sky-high interest rates. As such, although your chances of being approved are much higher with a bad credit loan provider, the rate of interest that you pay will follow suit.
The overarching reason for this is that loan providers are required to take on more risk by lending to those with bad credit. This is because your chances of default are going to be much more likely in comparison to somebody with a good credit score.
After all, if you do have a bad credit score, then this is likely to be because you have previously missed payments on credit-based products. This doesn’t include loans per-say, but other credit products such as credit cards, store cards, and overdrafts. It is also important to note that bad credit loans are also suitable for those that have no credit profile at all. This might be because you only recently turned 18, or you have never taken out credit before.
How do lenders assess my credit score?
Irrespective of whether its a loan, credit card, or overdraft – if credit is involved, you will all-but certainly have left a trail. By this, we mean that lenders will report your payment performance to the main three credit bureaus. This starts at the very offset when you initially apply for credit, through to your individual payments. Moreover, if you miss a payment, this is also going to be reported to the credit bureau agencies. In the UK, the three main agencies are Equifax, Experian, and Callcredit. As you go through life, these credit agencies will collect more and more data, which subsequently results in what is known as your ‘credit score’.
Here’s an overview of some of the main factors that will determine what your credit score looks like.
✔️ Whether you have ever missed or been late for a repayment
✔️ How much credit you have, or have previously had outstanding
✔️ The types of credit products you have
✔️ The size of your repayments in relation to your outstanding balances
✔️ Whether you have any CCJs (County Court Judgments) against your name
It is also important to note that your credit profile is used to verify your identity when you apply for a loan. This is crucial, as your application is likely to be rejected if the lender is unable to verify your identity electronically. One of the easiest ways for credit agencies to do this is to check your name against the electoral roll.
This is because the entry will list your name, your current and previous addresses, who you live with, and more. On top of the electoral roll, credit agencies will also hold data on whether you have any court records against your name that are linked to debt (such as bankruptcies), and whether you have any financial associations with other UK consumers (such as joint mortgages).
Do I have bad credit?
Whether or not lenders deem you to have a bad credit score is ultimately down to the main credit reporting agencies. As we noted in the previous section, your credit profile is dictated by your credit-related actions. On the one hand, just because you have missed a payment in the past doesn’t necessarily mean that you have a bad credit rating and thus – require a bad credit loan. On the other hand, if you have a consistent history of missing payments or worse – defaulting on loan agreements, then it is likely that this has resulted in a bad credit score.
One of the key problems in this respect is that each credit rating agency will have its own credit rating system. This is different from other countries such as the US, which uses a one-size-fits-all FICO score for consumers. Nevertheless, here’s a couple of examples so that you have a better understanding of how your credit score might look.
Equifax – Credit score ranges from 0 to 600
- ? Very Poor: 0-278
- ? Poor: 279-366
- ? Fair 367-419
- ? Good: 420-466
- ? Excellent: 466+
As you can see from the above, you will typically fall within the remit of ‘bad credit’ if your credit score sits between 0 and 366. In other words, being in possession of a ‘very poor’ or ‘poor’ credit rating will likely require you to obtain a bad credit loan.
Experian – Credit score ranges from 0 to 1,000
- ? Very Poor: 0-560
- ? Poor: 561-720
- ? Fair 721-880
- ? Good: 881-960
- ? Excellent: 960+
As you can see from the above, Experian has a much wider range when it comes to having less than ideal credit. In other words, having a score of less than 721/1000 will result in a credit score of either ‘very poor’ or ‘poor’.
How much do bad credit loans cost?
In the vast majority of cases, bad credit lenders will never list a single rate of interest. The reason for this is that the APR rate will depend on a number of different factors, such as your specific credit rating, the size of the loan, how much you want to borrow the funds for, and more.
Ultimately, you won’t know how much you are going to pay on your bad credit loan until you actually make an application. Don’t worry, you won’t be under any obligation to proceed with the loan when you receive your pre-approval offer.
Nevertheless, here’s a breakdown of the fundamentals.
✔️ Credit Score
First and foremost, the most important metric that lenders will look for when you initially apply for a loan is your credit score. As we noted earlier in our guide, your score will vary depending on the specific credit rating agency. Furthermore, lenders will typically only use one of the three agencies, so there is often no knowing which agency your credit score is being collected from.
Nevertheless, the overarching thing to remember is that the lower your credit score, the higher the APR is likely to be. On the contrary, the less adverse your credit score is, the lower your APR will be.
✔️ Size of the loan
Lenders will also base your APR rate on the amount of money that you wish to borrow. Don’t forget, interest rates are directly correlated to the amount of risk that the lender is undertaking. In other words, the more money that you choose to borrow, the higher the rate of interest. This is not exclusive to bad credit loans, but all credit-based products regardless of the borrower’s underlying credit score.
✔️ Term of the loan
In a similar nature to the size of your loan, lenders will take the term of the loan into consideration when assessing your APR rate. Once again, this is all down to the risk of lending the funds to you, so the longer you wish to borrow the funds for, the higher the APR is likely to be. At the same time, the shorter the term of the loan, the lower your APR is likely to be.
Take note, the exception to this rule is Payday loan lenders. As you might well know, Payday loans come with super-high APR rates that often exceed 1,000%, even though you are only borrowing the funds for a number of weeks. However, for the purpose of this guide, we will make the assumption that you are in the market for a conventional personal loan that comes with instalments over a much longer period of time.
On top of your credit score and the size/term of the loan, lenders will also want to know what your employment situation is when assessing your APR rate. More specifically, lenders will want to know how much you are earning in your current job. You stand a much better chance of obtaining a lower rate of interest if you are employed full-time with a good annual salary.
On the contrary, if you are only working part-time, or your full-time income is somewhat low, then you are likely to be hit with a higher APR rate. Take note, lenders will often ask you to verify your specified income status, so make sure that your application is accurate.
✔️ Assets and debt levels
The final key metric that bad credit loan lenders will look for when assessing your APR rate is that of your asset/debt ratios. Regarding the former, this will look at what assets you currently have. This could be anything from the amount of cash you have in your bank account, to whether you are a homeowner or rent.
When it comes to your debt levels, lenders will look to see how much debt you currently have outstanding. For example, if you have a plethora of other loans, credit cards or overdraft balances outstanding, then this could have a detrimental impact on the APR rate you are offered.
Can I get a bad credit loan if I am unemployed?
In the vast majority of cases, you will need to be in full-time employment to get the most competitive bad credit loan offers. However, some lenders have been known to accept applications even if the borrower is unemployed.
How much am I able to borrow with a bad credit lender?
How long does it take to apply for a bad credit loan?
The modern era of loan applications means that you can now execute the entire application online. As such, if the lender is able to verify your information automatically with the third-party sources it uses, then you could be approved for a bad credit loan within 15 minutes.
Will I need to upload any documents?
This depends on whether the lender is able to verify the information you entered during the application automatically. If they can't, then you might be asked to upload supporting documentation. This could be anything from a passport/driver's license to verify your identity, or a payslip to validate your stated income.