What are bad credit loans and what types of bad credit loans are there? The term ‘bad credit loan’ is often used when talking about a short-term loan or a payday loan, both of which have higher approval rates for those with bad credit than personal loans. Other finance that consumers can consider when applying with an imperfect credit history are logbook loans and guarantor loans. Finally, whilst subject to lower approval rates, those with a bad credit history can still apply for a personal loan, although there are numerous important considerations involved with this form of finance.
The ever expanding bad credit loan market
Whilst there are few figures that illustrate how many consumers are today classified as having poor credit, we know that UK debt is growing. As of 2016, household debts reached a record £1.5 trillion, while leading debt charity Step Change reports that their new clients have, on average, unsecured debts of £14,251 as compared to £13,900 as of 2015. With this growth of debt has come an ever expanding choice for consumers who seek out bad credit loans. As a result, the types of loans suitable for those with a poor credit history is more diverse than ever before.
Types of bad credit loans
Guarantor loans have a high rate of acceptance for those with bad credit. However, the reason behind this, and the major drawback to guarantor loans is that you must have someone who’s happy to guarantee the loan for you. This could be a friend, family member or acquaintance, however, it is better if they are a homeowner with good credit. Should you be unable to meet your financial obligations, this person will ultimately be responsible for repaying the loan.
A payday loan is a short duration form of finance mostly used for emergency situations (such as repairing a car or covering a period when a salary has been delayed). Officially the definition of a payday loan is: “short term borrowing that is fully repaid (including interest and any charges) in one instalment/ payment which usually takes place on your next pay day”.
Applications are fast and the repayment period is typically just one month, hence the name – they’re usually repaid on the borrower’s next payday. Read more about payday loans for bad credit in depth on this page. You should also be aware that applying for payday loans could affect your credit and in any case of borrowing, you need to make sure you can afford your loan.
Short-term loans run for between 1 and 6 months. While the amounts that can be borrowed are generally in the same region as a payday loan, short term loans spread the repayments over a longer duration.
Logbook loans are an old form of finance which commits your vehicle as security against the debt. How much you can borrow over how long a period depends on your car and its value. As a logbook loan is a secured form of finance, you won’t be credit checked, however, it is vital you carefully consider the implications of not keeping up with your repayments before going ahead with such a loan.
Generally speaking consumers with a poor credit history won’t qualify for personal loans, however, this does not apply to all, and some will qualify. The interest rate is dependent upon your credit history, so you’ll undoubtedly find that you face higher rates than advertised should you be approved.
A visual comparison of bad credit loans
|Type of finance||Average duration||Amount||Secured?||Credit check?|
|Guarantor loans||12 months – 5 years||£500 – £10,000||No||Yes|
|Payday loans||1 month||£80 – £50||No||Yes|
|Short-term loans||1 to 6 months||£80 – £500||No||Yes|
|Logbook loans||12 months – 5 years||£250 – £50,000||Yes – on your car||No|
|Personal loans||12 months – 5 years||£1,000 – £25,000||Not normally||Yes – and they’re tougher to quality for|
I have bad credit – should I apply for a personal loan?
First and foremost, despite personal loans offering much lower APR rates as compared to other forms of finance, they do run over a longer period, which may not be right for your needs.
Should the duration seem suitable, those with a blemished credit record will likely wonder whether it’s worth the risk of applying. Unfortunately, it’s impossible to provide a concrete answer to this question, even if we were to know your entire credit history.
What we can say is that almost 1 in 5 people who applied for mainstream finance in the form of a credit card or personal loan in 2016 were rejected.
If you’re borrowing £1500 or less, you do have a higher chance of approval than for more significant sums. You also need to understand that making multiple loan applications in a short space of time can temporarily dent your short term credit history. We suggest you try to rebuild your credit rating using our guide and avoid applying for too many loans.
If you need to speak with a member of our team about whether a bad credit loan is right for your circumstances, get in touch using the email below. Should you wish to speak to someone right away, you should use our live chat service.
CashLady Payday Loans for bad credit