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Loans for Poor Credit in the UK
17 Sep 2019

Let’s Take a Look at Loans for Poor Credit in the UK

For millions of families in the UK finances are a daily struggle. Money goes out as fast as it comes in with many having to live on a minimum wage. A sudden and unexpected financial outlay for many brings stress and worry. Many families living on the bread line have no savings to turn to so they turn to loans for poor credit in the hope they will be accepted.

Loan Statistics in the UK

With the arrival of loans online, it has become easier than ever to apply for and get a loan, even with a poor credit rating. It has made what once was an almost impossible task for people with poor credit ratings a far easier one as there are lenders today who will consider verifiable income not just credit scores.

First, let us take a look at some of the loan statistics in the UK.

  • In 2014, research revealed that 48% of households (35% of individuals) had debt; this figure does not include mortgages;
  • Two-thirds of households with children had debt;
  • Compared with the amount of income couples with children had the highest debts;
  • Couples with children had debt that was 19% of the annual income they received;
  • Twice as many people with low incomes were in debt as those with higher incomes;
  • Half of the borrowers with low incomes had debts of 83% of their annual income;
  • In June 2018 £17.1 billion was spent on credit cards;
  • At the end of June 2018, people in the United Kingdom owed almost £1.6 trillion in debt.

What Types of Loans For Poor Credit Are Available?

If you have found yourself in need of a loan, you are not alone as the figures above show.

One of the most popular types of loans applied for by people with poor credit ratings is the payday loan. This is due to the ease at which the loan can be applied for online, the fast payout that comes with such a loan and the fact that people are not tied into a loan over the long term. However, the payday loan has also been met with controversy.

The Advantages and Disadvantages of the Payday Loan

The payday loan does come with advantages and disadvantages. So let us break down them down.

The Advantages

First, let’s take a look at why the loans are so popular and the advantages offered with the payday loan for people with poor credit ratings.

  • A payday loan offers a small cash sum usually between £100 and £500;
  • Lenders are more likely to approve small loans for people with poor credit ratings than large sums of money;
  • Payday loans are applied for online and money is often paid into the person’s bank account within hours;
  • Loans can be used for just about anything;
  • The loan is either repaid on the persons next payday or spread out three paydays. Assuming you are paid monthly;
  • If you apply for a payday loan with our help, we can search to match you with a lender from a huge panel of UK lenders who consider verifiable income;
  • Providing you can repay the loan on time, a payday loan can help you to get past short term financial difficulties.

The Disadvantages

Now let’s take a look at some of the disadvantages on taking on a payday loan.

  • The APR listed alongside payday loans can be confusing. APR is the annual percentage rate but interest is not calculated over the year. Interest is added on daily to payday loans;
  • When payday comes around you have to make sure you have enough money in the bank to cover the loan in its entirety including interest or the portion of money including interest if spreading the loan over three paydays;
  • If you get into difficulty repaying the loan and roll it over the loan becomes an expensive way to borrow as fees and more interest are added on;
  • It can be tempting to continue borrowing by way of payday loans and rely on them from month-to-month.

The FCA Capped Payday Loans

Payday loans did attract a bad name. However, payday loans can work as intended providing they are taken out responsibly.

Loans of this nature have said to be expensive. However, if they are repaid as agreed within the period agreed they can work. It is only when they are continually rolled over and additional interest and fees added on that issues crop up.

The FCA caps the amount of interest on payday loans along with the default charges so that loans cannot spiral out of control. Along with this, ethical lenders, such as the ones we work alongside, ensure that any loan applied for is affordable.

The Bottom Line

Providing you know without a doubt that you can repay the loan a payday loan can work as intended. It can provide you with a financial lifeline in the short-term if something unexpected crops up.

Payday loans should not be relied upon from month-to-month. Nor should they be rolled over continually, as they then become an expensive way of borrowing.

Short-term Loans

Another popular type of loan that people with less than perfect credit ratings find relatively easy to be approved for is the short-term loan.

Again, as the name suggests the loan is repaid back quickly when compared to other loans and the limit to borrowing is generally low.

Let us look at the short-term loan

  • Lenders consider anything up to 12 months to be short-term. Short-term loans can be spread out over this period to make the loan more affordable each month but the longer the period the more the loan costs in total;
  • Lenders will generally offer short-term loans for up to £1,000;
  • You can apply for a short-term loan for just about any reason;
  • The APR is going to determine how much interest you pay, the lower the rate the less interest is added;
  • When considering a loan always check to find out if you can pay the loan off early than agreed without having to pay an early repayment fee. If so and you have a windfall you can save money on interest.

The Bottom Line

A short-term loan can be a good idea providing you make sure you can afford the monthly repayments. A loan of this nature does provide some leeway by spreading the repayments out to keep the monthly repayments down. However, this has to be weighed up against the fact that the longer you spread the loan over the more it will cost in interest.

Guarantor Loans

For people who have an extremely bad credit rating, there may be no other option but to apply for a guarantor loan.

Guarantor loans for poor credit in the UK do come with advantages and disadvantages that have to be weighed up against each other.

The Advantages

Let us first look at the advantages that come with guarantor loans.

  • Guarantor loans may be a way for people with extremely poor credit ratings to borrow when all other options have been extinguished;
  • Guarantor loans may offer thousands of pounds;
  • Loans may be spread out over a number of years.

The Disadvantages

Now let us look at the disadvantages of guarantor loans

  • The loans generally come with a high rate of interest as you are seen a high risk for borrowing;
  • You need to find someone who is willing to stand up as a guarantor for you. This means asking a good friend or relative;
  • If you fail to make the loan repayments, the guarantor has to take them over.

The Bottom Line

The guarantor loan can work in some circumstances but you and your guarantor have to understand the commitments when signing up for the loan. It may be an option for those who cannot get any other type of loan but it does need some careful consideration.

Secured Loans

Another type of loan is a secured loan. People who want to borrow large cash sums and spread the repayments over many years generally apply for this loan.

As with other loans, there are advantages and disadvantages.

Advantages of Secured Loans

  • The secured loan may be easier to find approval for with a very bad credit rating;
  • Secured loans may allow you to borrow thousands of pounds;
  • Loans may be spread out over many years;
  • The APR may be lower than with guarantor loans or personal loans. However, it will not be as low as the APR offered to someone with a good credit rating.

The Disadvantages

  • You have to put something up as collateral against the amount of money you want to borrow;
  • You stand to lose whatever you secured against the loan if you cannot continue meeting the loan repayments.

The Bottom Line

A secured loan needs to be given a great deal of thought because you are securing something of extreme value against the amount of money you are borrowing.

Things to Consider Before Applying for a Loan

It is never a good idea to rush into applying for a loan no matter how desperate you are. Here are some things to you might want to take into account.

  • Sit down and work out your finances to make sure the loan is going to be affordable;
  • If applying for a payday loan make sure that you are not going to be left broke when payday comes around and the repayment or entire loan is taken out of the bank;
  • Only borrow what you really need never be tempted to borrow more;
  • Look into your own credit file to make sure there are no errors on it that are having a negative effect on your credit rating;
  • Only apply for loans with ethical lenders.

Making an Online Loan Application

If you have done your homework and decided that a loan is affordable one of the easiest ways of applying for any loan is online.

While you could make an online search on your own you might want to consider allowing us to help you find a suitable loan. We work alongside a large panel of lenders to match those looking for loans with lenders willing to consider verifiable income. Lenders will check that you have a verifiable income along with checking your monthly outgoings to determine if the loan is affordable for you.

The lenders we work alongside offer affordable loan options and some of the most competitive interest rates based on the fact that your credit rating is less than perfect.

To start an online loan application you do have to make sure that you are eligible for a loan. Some basic criteria need meeting and this includes:

  • To apply for a loan you have to be at least 18 years old;
  • You need to have a regular income;
  • You must have a UK address;
  • You need to have a bank account in the UK;
  • You need a debit card linked to the bank account;
  • The lender may require a direct debit be set up for taking back the loan repayments.

If you meet the above criteria, we may be able to match you up with a lender.

Tell us how much money you need to borrow and how long you need to take the loan over.

Give us a few personal details and we can make a search on your behalf with the panel of lenders we work alongside.

You get an instant decision and you can check out the loan details and if suitable apply for it online.

The funds from the loan will be paid into your bank account, often on the same day and you can repay the loan as agreed.

Obtaining loans for poor credit with our help with ethical lenders may be the best solution providing you know the loan is affordable. Apply today and get an instant decision with fast payout if approved.