How do bad credit loans work?

How do bad credit loans work?
Stacey Corrin

how bad credit loans work

How bad credit loans work, doesn’t have to be confusing to understand.A bad credit loan is a short term loan for those with imperfect credit histories. Often used to cover emergencies, such as car repairs or urgent medical treatment, bad credit loans typically have durations of between 1 to 6 months, for amounts ranging between £80 and £500. When used responsibly, bad credit loans can be the very first step towards the repair of your credit file.

Applying for a bad credit loan

When you apply for a bad credit loan you will need various pieces of information, including:

  • Your home address
  • Your contact details (such as your email address and mobile number)
  • Your employment details (such as your employer’s name, address and contact details)
  • A breakdown of your personal outgoings

The application process also requires that you have:

  • An accessible email address
  • A smartphone
  • A debit account

loan application process

  1. You apply online for a loan amount of between £80 and £500
  2. A credit check is undertaken
  3. Your information is passed to our panel of lenders for consideration
  4. A loan offer or offers are made from a lender or lenders
  5. You select a suitable loan and acknowledge the terms and conditions with an online ‘e-signature’
  6. Your funds are sent directly to your account the same day
  7. Repayments are made over the set duration
  8. When the loan is fully repaid on time, a positive marker is left on your credit file

How long will it take to repay my bad credit loan?

The duration of your loan depends on the type of finance you choose. CashLady lenders are mostly payday lenders (which are repaid in one instalment); however, we also work with lenders who provide short term personal loans (which may run up to six months) and lines-of-credit (which operate on a per-day basis).




Please be aware – some of our lenders may provide a loan offer for an approximate amount, which could be higher or lower than the amount you originally applied for.

How bad credit loans work in terms of interest

Known as the Annual Percentage Rate of Charge, the APR of a bad credit loan defines how much interest you will be charged on the loan amount. The interest charge that applies to your bad credit loan will depend on:

  • The type of loan you choose
  • The lender that you are matched up with
  • Your credit history

Your lender will always provide a clear overview of the duration of the loan, the APR and the total costs involved should you take out the loan. When applying with CashLady for a bad credit loan, you may also be offered:

  • Payday loans
  • 1 – 6-month short term loans
  • Line of credit
  • Guarantor loans


Discover your loan options with CashLady – Apply here


Below we’ve represented the total interest charge on a £100 bad credit loan, at an APR rate of 1272%, with a loan duration of 4 weeks.

illustration of interest on a loan

How bad credit loans work: what charges will I pay for my bad credit loan?

When you take out a bad credit loan you’ll typically be required to repay approximately £24 for every £100 borrowed per 30 days (up to 0.8% daily interest). This amount is due to recent changes to the way that bad credit loans work, as defined by the FCA.

CashLady Calculator Tool

When used responsibly a bad credit loan can be one of the very first steps toward repairing your credit.

* This APR calculator is to be used for illustration purposes online. The figures displayed may not reflect the exact costs that you pay, which ultimately depend on the lender you use.


Apply for a loan from £80 to £2000 today


Why is the APR of a bad credit loan higher than other forms of finance?

When compared to a credit card or personal loan, the average APR of a bad credit loan is significantly higher. There are multiple reasons for this. First and foremost, it’s not appropriate to compare the rates of short term loans with personal loans. APR is designed for finance taken out over a relatively long period, hence its name: Annual Percentage Rate of Charge. The short term structure of a bad credit loan limits the interest you pay in pounds in any event. What’s more, recent changes at the Financial Conduct Authority (the FCA) mean that no borrower will ever have to repay more than double the amount they originally borrowed.

Below is a breakdown to illustrate the difference in interest paid between a longer term personal loan and a bad credit loan.

Finance TypeLoan amountAPRLoan periodTotal interest paidTotal amount repaid
Personal loan£1009.9%12 Months£5.21£105.21
Bad credit loan£1001272%2 Weeks£12.00£112.00

Another reason why the APR of bad credit finance is higher is due to the perceived risk to the lender. As the typical user of bad credit loans has a poor credit history, lenders correctly judge them to be a higher risk borrower than an individual who has a good credit history.

Different lines of credit are suitable for different purposes. For more guidance as to how bad credit loans work for you, read our guide: What are the alternatives to bad credit loans?




How is a bad credit loan repaid?

When you accept a loan offer your future repayments will be set up by direct debit. You will accept and agree to this being set up by way of a form. Typically your repayments will be just after your payday.

Interest is calculated on a daily basis, so you may be able to reduce the total cost payable by repaying the loan early. Typically our lenders accept direct debit, debit card, credit card, online payments and phone payments. You can also use PayPoint in your local shop.

What happens if I miss a payment on my bad credit loan?

When learning how bad credit loans work, first and foremost, you should do everything you can to keep up with your repayments, not doing so can dent your credit history further. However, if a missed or late payment is unavoidable then you should contact your lender directly to discuss your options and inform them of when you will be able to pay. The majority of lenders will allow you to roll over your payments, however, this will be limited to a certain number of recurrences. You should always endeavour to pay on time, otherwise, your loan will become far more expensive.

For impartial advice and help with your debt, you should consider contacting The Citizens Advice Bureau, The Money Advice Service or The Money Charity.

In this post gathered some useful information for you on what to do if you have problems with a loan and can repay it.

Should you need further help to understand how bad credit loans work and whether they may be right for you, use the email address below. You can also contact the CashLady team using either the email address displayed below or by making use of our live chat feature.



Stacey Corrin

Stacey Corrin

Stacey can be described as a serial blogger having created and maintained many successful blogs on topics ranging from social media and marketing to interior design and self-improvement. Along the way, she developed a great love of writing and graphic design, which caught the attention of the Cash Lady team. Now, Stacey uses her expertise on blogging and Social Media to manage Cash Lady's blog, helping to develop and polish many of the money saving articles and guides you'll find here. She's also Cash Lady's voice on Social Media and is always open for a chat on your favourite platform. Find out more about Stacey on Google+
Stacey Corrin

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