Think carefully before borrowing
Taking out more credit when you have a poor credit history carries real risk. Higher interest rates mean you repay significantly more than you borrow. If repayments are unaffordable, you may fall further into debt.
Before applying for any loan, consider whether free debt advice might help more. Free, impartial charities are ready to help — they do not charge for their services:
- StepChange — 0800 138 1111 — stepchange.org
- National Debtline — 0808 808 4000 — nationaldebtline.org
- MoneyHelper — 0800 138 7777 — moneyhelper.org.uk
If you are already struggling with existing debts or missing essential bills, speaking to one of these organisations first is usually a better option than taking out a new loan.
When borrowing may be appropriate
A loan may be worth considering only if:
- You have a genuine one-off need that cannot be covered another way
- You have explored all alternatives (see below)
- You are confident you can afford the repayments even if your circumstances change
- You are not already in financial difficulty
What counts as a poor credit history
Traditional lenders assess your credit report before deciding whether to lend. A poor credit history can result from:
- Missed or late payments on existing credit
- High levels of existing debt relative to income
- County Court Judgements (CCJs)
- Individual Voluntary Arrangements (IVAs) or Debt Management Plans
- Bankruptcy
- A limited credit history — common for young people or those new to the UK
- Applying for credit too frequently
Having a poor credit history does not always mean you are bad with money. Periods of illness, unemployment, or being a young person with no borrowing history can all affect your score.
What a poor credit history means for borrowing
Lenders use your credit history to assess risk. If your credit score is low:
- Mainstream lenders may refuse your application
- Specialist lenders may accept you but charge significantly higher interest rates
- You may be offered lower loan amounts or shorter terms
- The overall cost of borrowing will be higher
Avoid applying for multiple loans at once. Each credit application can leave a hard search on your file and further reduce your score, making future applications harder.
Types of borrowing available
Personal loans
Unsecured loans that do not require you to put up an asset as security. Used for a range of purposes. Interest rates for borrowers with poor credit are typically high. Always compare the total amount repayable across the full term, not just the monthly payment.
Guarantor loans
A guarantor — usually a family member or trusted friend — agrees to cover repayments if you cannot. This can make borrowing more accessible and sometimes at lower rates than unsecured options. The guarantor takes on real financial risk if you default. They must fully understand this commitment before agreeing.
Secured loans
Secured against an asset, typically your home. Missing repayments can lead to the lender repossessing that asset. Never secure a loan against your home unless you are certain you can afford the repayments under all foreseeable circumstances, including if your income were to fall.
Payday and high-cost short-term credit
Short-term loans with very high interest rates. The FCA caps charges but costs remain very high compared to other forms of borrowing. Missing payments can escalate costs quickly. These should only be considered as a genuine last resort, and only if you are certain you can repay in full on the agreed date.
Logbook loans
Secured against the value of your vehicle. Your car can be repossessed if you miss payments — a serious risk if you depend on it for work or daily life.
Peer-to-peer lending
Borrowing from individual investors through an FCA-regulated platform rather than a bank. Credit criteria vary. Not all peer-to-peer platforms accept applications from people with poor credit.
Credit unions
Not-for-profit financial cooperatives. Often offer more flexible lending criteria and lower interest rates than specialist bad-credit lenders. Membership is usually based on where you live or work. Worth exploring before approaching higher-cost options.
Key things to understand before you apply
Interest rates can be very high. APR on bad-credit loans typically ranges from around 20% to over 1,000% for short-term products. Compare the total cost of borrowing, not just the monthly payment.
Lower monthly payments can mean paying more overall. Spreading repayments over a longer term reduces monthly cost but increases total interest paid. Check the total amount repayable before you commit.
No lender can guarantee approval. Any lender claiming to offer guaranteed loans regardless of circumstances is misleading you or may not be properly authorised. Check the FCA Register at register.fca.org.uk before applying.
Soft searches do not affect your score. Some lenders offer an eligibility check using a soft credit search. This does not leave a mark on your file. Use soft checks where available before committing to a full application.
Alternatives to consider first
- Credit union — often lower rates and more flexible terms than specialist bad-credit lenders
- Overdraft — for small, short-term needs only; check fees and interest carefully
- Employer salary advance — some employers offer interest-free advances
- Local authority or charity grants — some councils and charities offer emergency grants or no-interest loans for people in financial hardship
- Debt management plan — if existing debt is the problem, a debt management plan may help more than a new loan
Free help
If you are struggling with debt or finding it difficult to afford essential bills:
- StepChange — 0800 138 1111 — stepchange.org
- National Debtline — 0808 808 4000 — nationaldebtline.org
- MoneyHelper — 0800 138 7777 — moneyhelper.org.uk
- Citizens Advice — citizensadvice.org.uk
These services are free, confidential, and impartial.