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How can I get a loan with bad credit?

In the UK, there are several options for getting a loan with bad credit from direct lenders that specialise in providing loans to individuals with a poor credit history.

Who are the lenders that specialise in bad credit loans?

There are a few direct lenders who specialise in bad credit loans in the UK:

  • Everyday Loans,
  • Fast Loan UK,
  • Lending Stream,
  • PayDayBadCredit,
  • Cashfloat,
  • Ocean Finance,
  • And many others.

There are also a few broker sites where you can check your eligibility against deals from multiple lenders:

  • New Horizons,
  • Cashflex,
  • And Badger Loans.

What are the usual terms for bad credit loans?

Just because options exist doesn't mean they're great. Expect high APRs, low borrowing limits, and tight repayment terms.

Here are some direct lenders who specialise in bad credit loans:

  • Everyday Loans: you can borrow between £1000 - £15,000 at a 99% APR
  • Fast Loan UK: offers £50 - £2,000, 840% APR
  • LendingStream: between £50 - £1500, at a whopping 1,333% APR
  • PayDayBadCredit: borrow between £300 - £1500, expect to see a 611% APR
  • Cashfloat: £300 – £2,500, 611% APR.

You might have better luck trying through a broker of bad credit loans instead of a direct lender:

  • New Horizons: £50 to £5,000, Rates between 9.3% APR and maximum 1721% APR
  • Cashflex: £100 - £10,000, lists a representative APR of 505%
  • Badger loans: you can borrow between £100 to £25,000, with APRs ranging from 12.9% to 1625.5%!

What is APR?

One thing to bear in mind when you search for a bad credit loan is that you might see lower interest rates listed on these websites. But that's not the actual cost of the loan. Most of these loans charge significantly more through fees than through interest alone.

APR stands for "annual percentage rate" and includes interest and fees. You should pay attention to it.

For example, you might see a loan with a representative interest rate of 50% but an APR of 600% because of all the fees charged on top. The APR is the actual cost – not the interest rate.

How do I know if I'm eligible for a bad credit loan?

One of the good things about bad credit loans is that most offer an eligibility checker on the website. This eligibility checker only runs a soft search on your credit file, which is only visible to you and does not impact your credit score.

However, when you apply, you must go through a so-called "hard check." This leaves a mark on your credit report, and having too many of them in a short time can hurt your credit score. They're also visible to all other lenders for up to two years, potentially hurting your future loan approval chances as well, as it might signal that you're struggling and need to cover your living costs by taking on debt.

Can bad credit loans improve my credit score?

Bad credit loans, despite their name, can be a valuable tool to improve your credit score in the UK:

  • They can help build your credit history if you make repayments on time and in full.
  • Taking out a loan increases your credit limit, lowering your credit utilisation ratio (how much credit you use versus how much you "could" use). This also helps your credit score.
  • A personal loan (which is what bad credit loans usually are) also helps diversify your credit mix—the variety of loans you have. Credit mix is also essential in the credit score formula.

However, bad credit loans also come with significant risks to your credit score. Because of the incredibly high APRs that most charge, you might find yourself in a debt spiral. If you can't meet repayments, this will show up on your credit report and hurt your credit score. It can even lead to you being taken to court, which can have quite a significant impact on your score as well.

And even if you can make repayments on time, bad credit loans are too expensive to consider as good credit-building tools.

Instead, consider these other alternatives:

  • Credit-building cards: they function similarly to bad credit loans. The main advantages are that you don't need to use your entire credit limit (keeping your credit utilisation low) and the lower APRs (usually between 35 and 55%).
  • Credit-building prepaid cards: These are debit cards that charge a fee. The card provider can lend you this card management fee as a loan, which you then repay monthly. It's a clever option, although the impact on your credit score is likely to be very small.
  • Or a credit-building app like Wollit. Wollit reports your monthly subscription as a loan repayment to all three leading credit reference agencies, helping you build your credit history in a safer, much more affordable way and with significantly less risk than a bad credit loan.

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