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13 Feb 2019

Is It Possible To Get Personal Loans for Bad Credit in the UK?

There are a large number different types of loans out there with some being easier to apply for and get approval if you have a bad credit rating. One type of loan is the personal loan. But is it possible to get personal loans for bad credit in the UK?

It certainly is not impossible to get a personal loan if you have bad credit but it is not one of the easiest types of loans to be approved for with a bad credit rating. Whether you will be approved will depend on several factors, including:

  • The amount of money you have coming in each month;
  • The amount of money going out each month;
  • How much debt you already have;
  • How poor your credit rating is;
  • How much you want to borrow;
  • How long you want to spread the repayments over.

What Is A Personal Loan?

A personal loan is given to the name of any loan used for general purpose. For instance, you might need to get your hands on money to pay for extensive repairs to the house or to buy a new car. Money acquired from a personal loan can generally be used for anything you wish, with many lenders not wanting to know what you want the money for, but some lenders may have different rules.

A personal loan is generally a loan that has a fixed rate of interest and you do not have to secure anything against the amount you are borrowing. However, if your credit rating is extremely poor and you want to borrow hundreds of pounds or thousands, the lender might offer you a secured loan instead.

This means that you have to put your home up against the amount of money you are borrowing as collateral. If you are unable to repay the loan the lender can then start proceedings against you to take your home to sell it to repay the debt.

While a personal loan is not a secured loan bear in mind that if you fail to make the repayments on the loan the lender will start court proceedings against you to get their money back and it will affect your credit rating.

How Much Can I Borrow With A Personal Loan?

The amount of money you can borrow with a personal loan varies between lenders. We work with a range of lenders who offer loans from £100 up to £5,000 and which can be repaid for up to 36 months.

If you have a bad credit rating lenders are generally reluctant to give out many thousands of pounds and allow you to spread the cost over many years. Anyone with a good credit rating, on the other hand, might be able to borrow up to £25,000 with a personal loan and repay it over 15 years or more. The amount you are able to borrow will also vary between lenders with all lenders putting a cap on the amount, regardless of your credit rating being excellent.

Fixed Repayment Periods with Personal Loans

Personal loans have fixed repayment periods and the length of the loan is chosen at the time of applying for the loan. Once you have agreed to the loan and signed up for it, the loan and interest accumulated have to be repaid within that period.

When considering how long to take the loan over bear in mind that the longer you take it over the more interest you are going to pay. Also, consider the fact that generally the longer you take it over the lower the monthly repayments will be. You are going to have to find a fine line between the loan repayments being affordable and not paying more interest than you need to.

The rate of interest generally differs based on the amount of time you take the loan over. You might get a lower rate of interest if you take the loan out over a shorter period.

The Rates of Interest on Personal Loans

All personal loans will have an APR attached to them. This is the annual percentage rate and it differs between lenders and your credit rating. Just because you see a percentage rate advertised it does not necessarily imply that this is the interest rate you will be given.

The interest rate is generally dependent on how much you want to borrow, how long you want to repay the loan over and your credit rating. Those with poor credit rating usually suffer at the hands of lenders as they are offered loans with higher ratings. We do work with a panel of lenders who offer the most competitive rates for loans to those with poor credit.

Generally, the rate of interest on personal loans is fixed. This is to say that if you take the loan out over 5 years, the rate of interest will remain the same over the 5 years even if the Bank of England interest rate goes up or down. One of the main benefits of this is that you know exactly how much you will be repaying on the loan, including interest. If the interest rate is variable the interest rate can go up or down, which means the monthly repayments also go up or down. If the interest rate goes up considerably during the term of the loan, you will end up paying back a lot more than you originally expected.

A Personal Loan can help you Consolidate Debt

One of the most popular reasons why people choose to apply for personal loans is if they have existing debts on loans and/or credit cards. By combining what you owe into one affordable loan you may save money and be in a position to pay off existing debts faster and easier.

If you have a credit card, store card and a loan all with existing debt you can combine the balance of all of these and borrow a sum of money to cover them all and pay them off. You will still have to repay the debt of the new loan, but you will save if the interest rate is lower than what you were paying on the other debts. Another benefit is that you will now be repaying just one repayment each month instead of several. The balances on the other debts will also show as being paid off on your credit score and you will have just one debt to repay.

Obtaining Personal Loans for Bad Credit

When reaching a decision about whether to approve you for a personal loan or not, lenders will take into account how much disposable income you have each month. This is the amount of money left after they subtract what you pay out each month from what you have coming in each month. This is to make sure that you have enough money each month to be able to afford to repay the loan.

If lenders think your credit rating is too poor and the risk of lending you money would be too high, they may offer you alternative loans, such as a guarantor loan or a secured loan. The secured loan keeps the risk down to a minimum as the lender would have put down something of extreme value against the amount borrowed, usually your home.

To apply for a personal loan with our help you can choose how much you would like to borrow and the period you would like to repay the loan.

Of course, you do need to be eligible in the first place. You need to have a regular income, be over 18, have a debit card and bank account and live in the UK.

Fill in some information about yourself and we can then try to find a lender most suitable for your loan from a range of lenders that we work with. This can benefit you, as you only have to make a single loan application to be able to search with numerous lenders offering numerous loan options.

You can then check out the loans to make certain that it is affordable to you, go ahead, and sign up online with the provider of the loan. Do make sure that you check out all the details of the loan. This includes any fees, such as fees associated with the loan if you can pay it off before the agreed time.

Alternatives to Personal Loans If your Credit Rating Is Too Poor

There are alternatives to personal loans that you might get approval for if your credit rating is too poor that you cannot get an unsecured personal loan.

More suitable options might include:

  • A secured loan;
  • A guarantor loan.

A Secured Loan

A secured loan is not the ideal way of borrowing, as you have to put up something worth a substantial sum of money against the loan, generally your home. This type of loan can only be taken out if you own your own home.

The secured loan can usually be spread out over long terms than an unsecured loan but the interest rate is generally variable. This means that it will fluctuate in line with the Bank of England interest rate. This means that the cost of borrowing might increase over the term of the loan and you end up paying out more.

Bear in mind that your circumstances might alter through the term of the loan and it may mean that the loan is no longer affordable. In this case, you do stand to lose your home to the lender. They will sell it and retrieve the money you own them.

A Guarantor Loan

A guarantor loan is a common type of loan typically offered to people with adverse credit. This relates to the fact that the lender has the assurance of a third party taking over the repayments in the event you cannot keep the repayments up.

With the guarantor loan, you have to find a person over the age of 18 who has an income coming in and who has a respectable credit rating, to say they will take over the loan if you find you cannot repay.

Guarantor loans are usually popular ways of borrowing with younger people who have not yet built up a credit score so the lender does not know how  big a risk they are. Usually, the younger generation will ask a parent or guardian to sign up for the loan with them and stand as their guarantor.

Having to ask someone to stand as your guarantor is not nice, as you have to admit that financially you are seen as a risk to the lender. The guarantor will also be putting their credit rating on the line as in the event you cannot make the repayments the loan repayments will fall to the guarantor.

In Conclusion

Bonsai Finance makes applying for personal loans for bad credit in the UK easy and quick. There is no need to search with different lenders on your own to try to find a lender who offers loans for people with poor credit. This takes time and can affect your credit score by making numerous applications with different lenders. The loan application through us is undertaken online. It is quick and simple, and you will know within minutes if you have been given approval.