In the world of personal finance, a poor credit history is meant to mean one thing: you won’t be able to borrow in future. Or, at least, you won’t be able to borrow for the six years it takes for your credit file to regenerate itself. It is assumed that financial institutions only wish to lend to people who have exemplary credit scores. People who have never missed a payment in their life, and who are incredibly financially secure.
In reality, however, personal finance and borrowing are rarely quite so black and white. For every type of borrower, there is a lender willing to try and work with their personal circumstances to see if an agreement can be reached. As a result, if you have a poor credit history, don’t despair just yet – you may well be able to find a personal loan to suit you.
Is it really possible to get a loan with bad credit?
Yes, though applying for such a loan with high street banks is rarely a good idea. The institutions that lend to people with poor credit scores are usually smaller and more independent. Many, you may never have heard of before. Thankfully, you’ve got us at Bonsai Finance to take you through the details!
How do bad credit personal loans differ from standard personal loans?
In many ways, the two types of loans are identical: you borrow a set amount of money and then repay it in monthly installments over a fixed term. Simple.
However, while standard and bad credit loans may operate in much the same way, they do have one key difference: expense. As a general rule, bad credit loans will be far more expensive – in terms of APR and, sometimes, an arrangement fee – than conventional loans offered by banks. Bad credit loans are more expensive to try and allow the lenders to mitigate the risk of lending to people who have a poor financial history.
For many people with bad credit, this is a fair exchange. They are still able to access the borrowing they wish to access, and they accept the higher costs as it allows them to borrow when they otherwise would have been turned down. You will need to scrutinise your finances to see if you wish to proceed with an application for a loan that will be far from the most affordable deal on the market.
Three things you should know before applying for a bad credit personal loan:
Before making the decision to apply for a bad credit personal loan, there are three important things you need to know:
- You should try to improve your credit score as much as possible before application. While loans for people with bad credit are able to accept people with less-than-perfect financial histories, it’s still best to do all you can to improve your credit file prior to making an application. For example, going through basics such as ensuring you are on the electoral roll or staying within your credit card limit for the three months prior to applying can make a surprisingly big difference to your chances of being accepted.
- When you apply for any form of credit, it is marked on your credit file. Too many applications in too short a time frame can have a negative impact on your credit file. This can be serious if your credit score is already struggling. It’s therefore important to just apply for one loan at a time and, if declined, wait a few months before applying for another loan.
- There’s no guarantee of acceptance. If you have a poor credit history, applying to a specialist company means you are more likely to be accepted – but there’s no guarantee you will be accepted. It’s therefore important to try to manage your expectations throughout the application process.
What options are there for personal loans with bad credit?
In some cases, the loans available for bad credit are similar to standard loan products, and there’s nothing particularly special you need to know. Sometimes, the lender just has a lower criteria for acceptance.
However, there is one key difference you may notice when perusing personal loans for bad credit: the addition of a guarantor. A guarantor is a person in your life who effectively co-signs on the loan with you. You will still be responsible for repaying the loan, but if you default, your guarantor assumes responsibility for ensures the money is repaid. The presence of a guarantor on your application often means you are more likely to have your loan request accepted.
There are, however, a few things you need to keep in mind before opting for a personal loan backed by a guarantor. First and foremost, your guarantor needs to have a good personal credit score and, in most cases, be a homeowner. Secondly, your guarantor genuinely is liable for the funds if you don’t repay. Therefore – for the sake of your finances and your personal relationship with your guarantor – you have to be sure you are going to be able to repay your loan as agreed.
What sort of bad credit personal loans are available?
When consider a personal loan for bad credit, it is worth looking at some of the options available to assist you in your decision making. That’s why we have put together a few examples of different types of loans that are available. The loans we’re going to talk about are all genuine options that you can apply for if you so wish, but we are not saying they are the best deals available or that they are suitable for your personally – they are mere examples. To ensure you are able to peruse the best, most up-to-date options, we would always recommend running a search here at Bonsai Finance so you can see the options that might be most suitable for you.
With that caveat in mind, here are a few of the options available for people looking for bad credit options for personal loans…
Option #1 – Everyday Loans
Everyday Loans are one of the simpler companies who offer loans to people with bad credit histories. They do not require a guarantor for their loans and they place no particular stipulations on your home ownership status, making them a decent, well-rounded option for someone looking with a few blemishes on their credit history.
The base facts about the offering from Everyday Loans are as follows:
- Smallest loan offered: £1,000
- Largest loan offered: £15,000
- Loan length: Between two years and five years
The above may all sound well and good but, inevitably, there is a downside when it comes to the APR. For example, the representative example suggests that a £3,000 loan could result in repayments of £5,562.75 – an APR of 93.6%. Fairly eye-watering, then, but there’s no denying that Everyday Loans offer a flexible solution for applicants who may not be able to qualify for other bad credit personal loans due to home ownership status or a lack of a guarantor.
Option #2 – Citrus Loans
It’s important to note that Citrus Loans do not directly fund loans themselves; they are a broker, who will connect you with providers in order to allow you to arrange a loan specifically. While this is less than ideal – a third-party being involved in a financial transaction is rarely a preference – Citrus do offer some personal loans that may be beneficial to people struggling for acceptance elsewhere.
Here’s a look at the basic stats you need to know when considering an application:
- Smallest loan offered: £1,500
- Largest loan offered: £25,000
- Loan length: Twelve months to five years
The representative example for Citrus Loans is fairly reasonable. For example, if you borrow £10,000 over three years, you will repay a total of £12,913.20, which means a rate of 18.9% per annum (fixed). However, as you may expect with such a low APR, Citrus Loans tends to have a higher threshold in terms of level of bad credit they will accept. If your credit history is in particularly poor condition, it may be worth examining other companies first
Option #3 – 1st Stop Homeowner Plus
This loan from 1st Stop is a good option for anyone struggling with bad credit, but it does have a substantial downside: you have to be a homeowner to apply.
It is worth noting that while you need to be a homeowner to apply to 1st Stop, the loan is not secured against your house. This is a particularly important factor, and one that may make 1st Stop more palatable to people looking for bad credit. As you likely know, securing a loan against your home is always a decidedly worrying prospect, and should ideally be avoided at all costs. So it’s good news that 1st Stop, while asking that you be a homeowner, don’t require you to use your home as collateral for the loan.
Here’s the rest of the information you need to know about the homeowner-only loan offered by 1st Plus:
- Smallest loan offered: £2,000
- Largest loan offered: £15,000
- Loan length: Twelve months to five years.
The representative example for this loan would see you repaying a loan of £5,500 over four years, and you would repay a total of £7,360.56 at a flat rate of 9.684% per annum (fixed). It is also worth noting that you may be required to pay an arrangement fee for this product, but this is not something you have to pay upfront – it will be deducted from your monthly repayments.
Option #4 – Suco Guarantor Loan
We have mentioned guarantor loans earlier in this piece, so it seemed important to include an example of how they work in practice. Here’s a look at how loans from Suco Guarantor Loans work:
- Smallest loan offered: £1,000
- Largest loan offered: £15,000
- Loan length: Four to five years
- Guarantor details: All loans must have a guarantor who is a homeowner and is between the ages of 18 and 78.
The representative example for Suco Guarantor Loans suggests that £8,000 borrowed over five years at a rate of 39.9% per annum (fixed) would see you repay £16,752 in total.
This example shows that, for the most part, guarantor loans are no different from other types of bad credit loans. A guarantor is unlikely to allow you to borrow for a lower cost, for example; their role is primarily constrained to acceptance of your application only.
The options above have been presented as examples. While these are all real products that you can apply for, it’s best to run a comparison check here at Bonsai Finance to ensure you have the most up-to-date options for your personal loan choices. You may see the products mentioned above are displayed in your comparison results; or you may see an entirely different set of options. Either way, having an idea of the types of products available – as detailed above – should stand you in good stead when it comes to interpreting your own comparison results.
So should you apply for a bad credit personal loan?
Now you have an idea of some of the different options available to you, you can make a decision on whether a bad credit personal loan is a suitable choice for you personally.
While these loans may not offer the best value, they are accessible. This is important, as people with poor credit histories should not be cut off from future borrowing entirely; these loans offer a middle ground. Yes, they are expensive to the borrower in order to mitigate the risk for the provider, but they do offer an option where conventional banks fail.
Provided you are informed and aware of the risks, bad credit personal loans can be extremely useful. Just remember to run a comparison here at Bonsai Finance to ensure you’re getting the best possible deal for your circumstances.
We hope you enjoyed our guide to the best options for people looking for personal loans for bad credit. We have sought to provide an overview that gives you a glimpse into some of the loans that are available when you run a comparison on our site, but remember to run a personalised search here at Bonsai Finance to ensure you see the best options for you personally.