Very bad credit loans are short-term, high-cost loans aimed at subprime borrowers who need a quick injection of cash. Despite stowing away money for unexpected expenses, savings fall short of cash. Loans come in handy when you do not have savings to fall back on. Unfortunately, a stellar credit history is a must to secure a loan at affordable interest rates. While some lenders approbate applications with less than perfect credit scores, it should not be in a very poor credit score range.
It is worth noting that it is difficult to secure a loan with a very poor credit rating, as it explicitly suggests that you have never stayed committed to your past payments. No lender will feel inclined to trust your repayment potential despite a great financial condition. If somehow you manage to receive very bad credit loans from direct lenders, you will end up with a high interest rate.
Features of very poor credit loans:
• They are very costly.
• They must be paid off in one fell swoop.
• The upper borrowing limit is not more than £500.
• They charge processing fees.
• They can throw you into an ongoing cycle of debt.
What loans are available with very bad credit ratings?
The following table demonstrates loans you might get the nod for.
| Types of loans | Features |
| Cash loans | • Cannot be secured for more than £500. • The whole amount is paid off within a space of 15 days. • Ideal only for unavoidable small expenses. • Instant approval. • The decision is made based on your income. |
| Weekly instalment loans | • The loan amount will be between £500 and £1,000. • You will pay down the debt in fixed weekly instalments. • The repayment term will be between two weeks and a month. • Hard credit check will be made. • Ideal for small emergencies. |
| Payday loans | • The loan amount is between £100 and £1,000. • Interest rates are capped at 0.8% per day. • Late payment fees are capped at £15. • The total loan cost cannot be double the borrowing amount. • Soft credit checks are made. • The lending decision is made based on your repaying potential. |
| Loans for the unemployed | • These loans are aimed at the unemployed. • Suitable only when you need money for unavoidable reasons. • The loan amount cannot be more than £700, depending on benefits and side gig income. • It is a must to have a passive income source. It includes unemployment benefits. • Hard credit inquiries will be run. • They are paid down in weekly instalments. • The loan term is generally between a month and three months. |
| Guarantor loans | • You will need to arrange a guarantor with a good credit score. • The loan amount can be up to £5,000. • The loan is paid down in monthly instalments. • Hard check is run. • Your guarantor will be responsible for discharging the debt in case you default. • A default will damage your guarantor’s credit score as well, even if they settle the whole debt. • Unlike the aforementioned loans, guarantor loans can help build your credit score, provided you do not abdicate obligations. |
How to qualify for very bad credit loans from direct lenders
Here is how you can improve your qualifying rate for extremely poor credit loans:
| Steps to take | What you need to do |
| Assess your credit situation | • Get a copy of your credit report and evaluate your current score. • If there are any errors, dispute them. Credit reference agencies will take some time to fix them. • Identify reasons why your score is abysmal, such as a high credit utilisation ratio, late payments, missed payments, and the like. |
| Research reputed direct lenders | • Research reputed direct lenders. Borrow money only from FCA regulated lenders. • Avoid borrowing from lenders who run no credit checks at all. Such loan offers are available from loan sharks in order to trap you into exorbitant deals. • Read reviews. They will help you know how satisfied their borrowers are with them. • Try to contact lenders who are specialised in accepting applications with extremely bad credit ratings. |
| Compare loan options | • Lump sum loans are very expensive. If possible, you should choose instalment loans. • Carefully compare the cost of alternatives and then choose a favourable loan. • If possible, consider loans with flexible repayment plans. |
| Keep your documents ready | • Make sure that you have pay slips, bank statements and other related documents. • Try to demonstrate a strong repayment capacity. This will improve your chances of getting qualified for these loans. • Show employment stability. |
| Fill in the form online | • Submit an application form online and wait for the decision. • Avoid applying to multiple lenders within a short period. |
Alternatives to extremely poor credit loans
Here are the alternatives to very bad credit loans:
• Borrow from friends and family. They will not charge interest. Since the loan amount is small, they might go to bat for you. However, make sure that you do not deceive them.
• Consider credit union loans. They are more affordable than loans. You will still need to compare costs between them to make a decision.
Ways to rebuild credit
You cannot stop fixing your credit score just because loans are available to you.
• You should take a break from borrowing. Let inquiries be old.
• Consider using a credit builder loan and pay if off on time. You will notice a significant boost in your credit score.
• Use your credit card wisely. Make small purchases and pay off the balance in full.
To wrap up
Unless it is too urgent, you should not apply for very bad credit loans as they are exorbitant. They can throw you into debt. Borrow money from a regulated and specialized lender if it is necessary. Consider alternatives. They might be more budget-friendly.
Frequently Asked Questions (FAQs)
Can I get a loan with very bad credit in the UK?
Yes, many UK direct lenders offer loans to people with very bad credit. They prioritize your current financial situation, including income and affordability, rather than just your credit score, which increases your chances of approval even with poor credit history.
What are the requirements for approval?
The UK typically requires that you be at least 18 years old, a UK resident, have a steady source of income, and hold an active UK bank account for approval. Lenders may also consider your ability to repay before making a final decision.
Do I require a guarantor?
Not always. Many UK direct lenders offer no-guarantor loans for bad credit borrowers. Having a guarantor can boost your chances of approval and may lead to better interest rates, particularly if your credit history is extremely poor or limited.
How much can I borrow with very bad credit?
Typically, people with poor credit in the UK can borrow between £100 and £5,000. The amount you receive will depend on your income, financial stability, and the lender’s criteria. First-time borrowers or applicants with higher risk may receive smaller loan amounts at first.
What interest rates can I expect?
Interest rates for very bad credit loans in the UK are generally higher due to increased risk. APRs can vary greatly, often starting at 49% and going up significantly for short-term loans. It is important to compare lenders and understand the total repayment cost.
How fast can I get the money?
Many UK direct lenders offer quick decisions and fast payouts. Once approved, funds can often be transferred the same day or within 24 hours. The speed of processing is influenced by the lender, application time, and bank transfer schedules, particularly during non-working hours.
Will applying affect my credit score?
Applying for a loan in the UK may affect your credit score depending on the type of loan application. Soft checks have no effect on your score, while hard checks can slightly decrease it. Having multiple applications in a short amount of time can have a negative impact on your credit profile.
Can I get a loan without a credit check?
Completely no-credit-check loans are rare in the UK. Most legitimate lenders that are regulated by the Financial Conduct Authority must conduct affordability checks. Some may offer soft credit checks initially, but full approval usually involves responsibly reviewing your financial situation.
Are very bad credit loans safe?
In the UK, lenders authorised by the Financial Conduct Authority are safe for very bad credit loans. Verifying credentials is a must, avoid lenders asking for upfront fees, and carefully read terms to ensure transparency and protection from unfair lending practices.
What are the alternatives to bad credit loans?
Debt consolidation options in the UK can be considered alongside borrowing from credit unions, seeking help from family or friends, and using budgeting support services as alternatives. These alternatives may offer lower costs and reduce financial pressure compared to high-interest bad credit loans from direct lenders.
Can I improve my chances of approval?
You can improve approval chances by applying for a smaller loan, showing stable income, reducing existing debts, and ensuring accurate application details. By using a guarantor or maintaining a consistent bank record, UK lenders can view you as a more trustworthy borrower.
Can I repay early?
Yes, most UK lenders allow early repayment of loans. The total interest you pay may be reduced by this, but some lenders may charge early repayment fees. Always check the loan agreement terms to understand any potential charges or savings before deciding to repay early.
Anna Johnson has more than 11 years of experience in direct lending industry of the UK. She is the Senior Content Editor at 24cashflow where she is leading a large team of loan experts. During her career, she has helped the loan aspirants to use the particular loans in the best way and improve their financial lives and status.
Anna Johnson is known for her in-depth research of the UK loan marketplace, as she has worked with many major lending firms in her career. During her educational phase, she has done a research on ‘Finance Fundamentals for Growing Business’.
