Should I get a loan if I have a bad credit score?

The risks and alternatives...

Rosie Hamilton | Edited by Hannah McEwen

Updated 28 September 2023

If you have bad credit you'll find it hard to access the cheapest loans – and those you can access are likely to be VERY expensive. This guide looks at what products may be available to you if you have a poor credit history, the risks of borrowing if you're already struggling with debt, and the other options you should consider first.

Is it wise to get a loan with bad credit?

If you have a poor credit history then no, it's not usually a good idea to take out a loan – particularly if you've had debt problems, either now or in the past.

Not only will you find it difficult to access the top rates and products, but increasing your debt burden could see you spiralling into further financial difficulty. This is to be avoided at all costs.

If you've got bad credit and are considering a loan, it's important to work through these steps first...

Step 1: Try improving your credit score to access better rates

It's always worth checking your credit score before applying for a 'bad credit loan' – we show you how to check your credit score for free online in our full guide.

Doing this check will give you a better sense of your financial position, the products you may be able to access, and if there are any easy ways you can improve your rating.

Taking out a loan is not a decision to be rushed, so if you can, take some time to boost your credit score first – this can then open up access to cheaper and less risky forms of borrowing. We've some tips below to get you started, or for a full breakdown on how to get your credit rating into tip-top shape, head over to our Improving your credit score guide.

Step 2: Get help with your debts (if you have them)

If you're looking to access cash with a 'bad credit loan' because you have unmanageable debts, DON'T BORROW MORE. You may be able to get help.

While there's no official government scheme that will help to write off any debts you have, there are some formal schemes introduced by the Government that are designed to make them more manageable.

We look at these formal debt solutions in detail in our Debt help guide, but here's a brief overview:

Debt management plan. An agreement between you and your creditors that can only be used to pay off 'unsecured' debts. Some companies will charge a fee to arrange it.
Administration order. A way of dealing with debts of less than £5,000, if you have a county court judgment or High Court judgment against you and you can't repay in full. You make one payment a month to the court, and there's a fee on top each time.
Individual voluntary arrangement. You make regular payments to an insolvency practitioner, who will divide this money between your creditors. There's a set-up fee and a handling fee each time you make a payment. Any debts remaining at the end of your IVA will be written off.
Breathing space (debt respite scheme). Temporary relief from debt payments for up to 60 days. Interest can still build up during this period.
Debt relief order (DRO). This allows you to stop making payments towards your debts for 12 months, but it comes with restrictions – for example, you can't open a bank account without telling the bank about your DRO. There's a one-off fee of £90 and the DRO will stay on your credit record for six years. If your financial situation hasn't changed at the end of the 12 months, then your debts are written off.
Bankruptcy order (or 'sequestration' in Scotland). Your debts are written off, and any income or assets you have might be taken to pay off the debt.

For further advice based on your personal circumstances, get in touch with debt-help charities StepChange or Citizens Advice.

Step 3: Consider whether there's a better (or cheaper) alternative

Bad credit loans can be an expensive and risky way to borrow money, but especially so if you've a poor or limited credit history.

Before you consider taking out a bad credit loan, you should first check if you're eligible for a standard personal loan first. Our free eligibility checker will let you know how likely you are to be accepted, without leaving a record on your credit report.

Then, if you don't qualify and you really need access to cash – for example, your car's just packed up and you need to replace it – then see if one of the following options could work for you first, before opting for a loan.

And if you're in debt already, see more help on cutting your existing debt.

An overdraft. Many current accounts allow you to borrow money, but you can be charged high rates of interest or other fees to do this. There are interest-free overdraft options available.
Credit union. These not-for-profit financial providers are set up to be used by members with something in common – such as location or profession. They typically offer savings accounts and loans and crucially often lend to people who might not be able to borrow easily elsewhere. Read more in our Credit unions guide.
Non-profit community finance providers. A small number of community development finance institutions provide personal loans. They do charge a higher interest rate than credit unions, and this means they can help people with more complex needs. Find out more about non-profit community finance providers.
Credit builder card. These cards can provide a cheaper way to borrow than a 'bad credit loan' (and can also help to repair a damaged credit rating). They're designed for those with less-than-perfect credit scores and allow you to borrow smaller amounts. For more information on how these work and how to apply, see our Credit cards for bad credit guide.

Warning. Always avoid loan sharks

However bad things might seem, ALWAYS avoid using a loan shark. They're unlicensed, they break the law, often go knocking door-to-door and at worst they use horrific methods – including violence and threats of violence against the borrower, their family or children – to get their money repaid.

What is a bad credit loan?

Talking plainly, there's no one specific loan product out there for people with bad credit. However, there are certain providers more willing to lend to those with a poor or limited credit history. They'll often advertise their services online under 'bad credit loans'.

'Bad credit loans' are likely to be very expensive

Typically, if you have a good credit score and you're able to take out an unsecured personal loan, interest rates can be around 14% to 15% (to borrow £3,000).

Some 'bad credit' lenders, however, can charge up to 1,294% interest (on up to £1,500).

So it's crucial to consider your other options first, before taking out a 'bad credit loan', and bear in mind the other types of loan that you may be able to access...

What types of bad credit loans are there?

As we've seen, there's not one single type of loan available to those with a poor or limited credit history – there's actually a range of products that may be available. Whether you can access these will depend on your credit score and your own individual circumstances.

Here we've listed some of the loans that may be available to you if you've got bad credit, with a warning: some of these are incredibly risky, so beware.

Unsecured personal loans. A loan you pay off monthly, plus interest. For more on these, see our Cheap loans guide.
Budgeting loans. If you've been on certain income-related benefits for at least six months. No interest but repayments are taken automatically from your monthly benefit payments.

Guarantor loans. Avoid if at all possible, as these are risky. Here, someone you trust with a good credit rating agrees to pay the loan if you miss repayments. Read more about guarantor loans.
Secured loans. Again, avoid where possible. With a secured loan you use your home (or another high value asset) as collateral – this reduces the risk for the lender, but hugely increases the risk to you. Read more about secured loans.

What is bad credit, and do I have it?

When you check your credit history, you'll see a number called your 'credit score'. There isn't a single 'good' or 'bad' rating – which is why it's important to:

Check and understand your credit score before applying
Know the types of loan that may be available to you
And, where possible, check whether you'll qualify before committing

Rather than being a single rating, your credit score will land somewhere within a range, and will be interpreted differently by different lenders.

Credit reference agencies provide these credit scores, and each one has its own scoring range. We've put the three main agencies' credit-score ranges in the table below – you can see just how much the numbers vary across the companies.

Credit score ranges

Credit reference agency	'Poor' score	'Fair' score	'Good' score	'Excellent' score	Full range
Equifax	0 to 438	439 to 530	531 to 810	811 or higher	0 to 1,000
Experian	0 to 720	721 to 880	881 to 960	961 or higher	0 to 999
TransUnion	0 to 565	566 to 603	604 to 627	628 or higher	0 to 710

Check your credit score online for free

You can check your credit score online with the three agencies above for free – we cover how (plus some tips on what to watch out for) in our How to check your credit report guide.

Important. Lenders won't actually see a 'score' when they check your credit history – the figure is just to give you a sense of how your application might be viewed.

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What are the pros and cons of a bad credit loan?

The disadvantages of taking on a loan if you have a poor credit history far outweigh the advantages. With a bad credit loan you might get access to a lump sum of money quickly, but it's not the best option for the following reasons:

Lack of product choice. Because lenders view those with poor credit scores as more risky to lend to than those with good credit ratings, they will only offer a limited selection of loan products.

High interest rates. Similarly, to reduce the risk to the lender, those with poor credit ratings are often only eligible for more expensive borrowing options.
Impact on credit score. If you're not able to keep up with your repayments, you'll negatively affect your credit score.
Risky. If you're not able to keep up with your repayments, you can face extra fees, court action, and a county court judgment. If you take out a secured loan, you'll also be at risk of losing your home if you secure the loan against it and can't repay your debts.

How can I improve my credit score?

While the best way to improve your credit rating is to manage your finances responsibly and consistently, there are a few easy ways to make sure you're in the best possible starting position.

These are our top tips, but for a full breakdown on how to get your credit rating into tip-top shape, head to our Improving your credit score guide.

Register to vote. Registering to vote and being on the electoral roll makes it easier for lenders to confirm your identity and address, and is an easy way to boost your credit rating. You can register to vote anytime online.
Check your credit report for errors... and fix them. If you discover an unfair default or error on your credit report, you need to dispute this as it will block most applications. Follow these steps to fight an unfair default or other error on your credit report.
Pay your bills on time. It's easy to say, and perhaps not as easy to put into practice, but demonstrating a consistent and responsible approach to your finances will help improve your score quickly.
Don't make too many credit applications at once. Every time you make an application it leaves a mark on your credit report. Doing lots in one go can make it look like you're desperate for credit or that you're getting rejected a lot. So space them out.
Keep your 'credit utilisation ratio' low. By not maxing out your credit you're demonstrating you can use it responsibly and aren't applying because you're desperate for funds.

FAQs

Can I get approved for a loan online?

Yes. Many lenders prefer you to apply online, and can do ID and credit checks virtually.

In some cases you can even get instant approval, but if you have poor credit it's likely you'll be subject to more extensive credit checks. Either way, taking on a loan is not a decision to be taken lightly, and requires much thought before you reach the application stage.
Can I apply for a small loan when I have bad credit?

Yes, lenders will tend to offer smaller loans to you if you have a poor credit history.

However, if you're looking to borrow a small amount, you might find that a credit card would be cheaper than a loan. To avoid further damaging your credit score, it's important to check your eligibility for a credit card online for free before you apply – this won't leave a mark on your credit report.
What do I need to consider when taking out a loan with bad credit?
You should think once, twice, and think again before taking out a loan if your credit record is poor or limited. But if you absolutely have to, these are the points to consider (these apply when taking out any loan):

The total cost. Consider how much you'll have to pay back in total (the amount you're borrowing plus the interest plus any one-off fees), and consider if the reason you're borrowing is worth this amount.

The monthly cost. Will you be able to commit to this amount over the term of the loan?

How long you'll be paying it back for, and how certain you are of your financial circumstances for that period of time.

The risk – particularly for any type of secured loan.
Where can I check my credit score?

You can check your credit score online for free. We cover how (plus some tips on what to look out for) in our How to check your credit report guide.
Will making multiple loan applications affect my credit score?

Yes. Every time you apply it leaves a mark on your credit report. Doing loads of these at once can be concerning to lenders – it can look like you're desperate to borrow or that you're getting rejected a lot.

You can check whether you'll qualify for most unsecured personal loans before you apply, which can help to reduce the number of applications you make, protecting your credit score. Try our free Loans Eligibility Calculator.
What happens if I'm not able to repay my loan?

If you think you're not going to be able to afford your loan repayments, let your lender know BEFORE you miss the payment. Often you'll be able to arrange a new, more affordable repayment plan, or a temporary pause to your repayments (though you may end up paying more interest overall).

If you miss payments without making arrangements with your lender you could face additional fees and interest on top of what you already owe, plus further damage to your credit score. The lender could also take you to court. This can make future borrowing incredibly difficult.