An unsecured loan does not put your home or car at risk if you miss a payment. This article explains what unsecured means, what APRs to expect with bad credit, and how eligibility works in practice.
This article provides general information only. It is not financial advice and does not take into account your personal circumstances. If you are unsure about the right borrowing option for you, speaking to an independent financial adviser or a free debt advice service may be a helpful next step.
What is an unsecured loan and how does it work?
An unsecured loan is a loan where you have not offered any asset as security. The lender relies on your creditworthiness and income when deciding whether to lend. If you miss payments, the lender does not have an automatic right to take your home or car. That is the core distinction.
This is different from a secured loan, where the debt is tied to an asset. With secured lending, the asset can be repossessed if repayments stop. For anyone trying to borrow without putting property or a vehicle at risk, unsecured borrowing is a different arrangement entirely. You can read more about how personal loans work as a category, including the range of unsecured products available.
Why does the secured/unsecured distinction matter for bad-credit borrowers?
If you have a poor credit history, some lenders may try to offer you a secured loan instead. This can feel appealing if the monthly payments are lower or the advertised rate looks better.
A lower payment on a secured loan may come from a longer repayment period, stretching debt over more years can mean paying significantly more in total, and if something goes wrong with payments, the asset securing the loan is at risk.
An unsecured loan removes that specific risk. Your home or car are not put forward as collateral. The risk of missed payments is still serious, but it takes a different form: damage to your credit file, default notices, potential county court judgement (CCJ) proceedings, and debt collection action.
If you are considering borrowing and want to keep assets out of the picture entirely, unsecured is the relevant category to look at.
What APRs can I expect on an unsecured loan if I have bad credit?
This is one of the most important things to understand before applying.
Lenders set interest rates based on how they assess risk. Borrowers with bad credit are seen as higher risk. Without an asset securing the loan, the lender has less recourse if repayments stop. Those two factors together typically mean higher APRs for bad-credit unsecured products.
To give a sense of the range: mainstream personal loan rates for borrowers with good credit commonly sit in the single digits, with many representative APRs between roughly 6% and 15% as of mid-2024 (MoneyHelper, moneyhelper.org.uk, personal loans guidance). For borrowers with bad credit, rates on unsecured products are typically much higher. Specialist bad-credit lenders frequently advertise representative APRs in the range of 30% to 70%, and some short-term or higher-risk products carry representative APRs above 100%. The FCA's consumer credit data confirms that rates on higher-risk unsecured lending are substantially above those offered to borrowers with clean credit histories (FCA, fca.org.uk/data-and-research/research-and-reports). These figures are illustrative of the market shape; the rate you are offered will depend on your individual circumstances and the lender's own criteria at the time you apply.
The advertised rate on a lender's website is the representative APR. By law, this rate must be offered to at least 51% of successful applicants. If you have bad credit, it is common to be offered a rate higher than the representative APR. The rate you are offered is personal to your application.
A useful first step is to compare the total amount repayable on any offer, not just the monthly payment. Two loans with different APRs and different terms can look similar month to month but cost very different amounts overall. The loan repayment calculator on this site can help you work out the full picture.
How does eligibility work for unsecured loans with bad credit?
Approval is never certain and depends on each lender's own criteria. Different lenders serve different parts of the credit spectrum. Some specialise in lending to people with defaults, CCJs, or missed payments on their record. Others do not.
When a lender considers your application, they typically look at:
- Your credit file. This shows your repayment history, any defaults or CCJs, and how much credit you currently use.
- Your income and outgoings. Lenders are required to carry out affordability checks. They need evidence that repayments are manageable alongside your existing commitments.
- Your employment status. Being in work, self-employed, or receiving certain benefits can all affect how lenders assess you.
- The loan amount and term. Smaller amounts over shorter terms are generally easier to get approved for.
Having bad credit does not automatically mean refusal. It does mean that fewer lenders are likely to offer you a loan, and the rate you are offered may be higher than the advertised representative APR.
What is a soft search and why does it matter?
Every full loan application involves a hard search on your credit file. Hard searches leave a visible mark. Multiple hard searches in a short period can lower your credit score further, which may make the next application harder.
Many lenders now offer an eligibility check that uses a soft search. A soft search lets the lender assess your likely eligibility without leaving a mark on your credit file that other lenders can see.
Using a soft-search eligibility checker before submitting a full application is a practical way to get an indication of your chances without adding further hard searches to your record.
How can I tell if a lender is authorised to operate in the UK?
The FCA has warned that bad-credit borrowers can be targeted by firms that are not authorised to lend in the UK. Unauthorised lenders are not subject to FCA rules on affordability, fair treatment, or complaints handling.
Before you apply with any lender, it is worth checking the FCA's Financial Services Register to confirm they are authorised. You can search for any firm by name or registration number at fca.org.uk. Lending by an unauthorised firm carries no regulatory protection.
What to check before applying for an unsecured loan with bad credit
Before applying, it can help to:
- Check your credit file. All three main credit reference agencies (Experian, Equifax, and TransUnion) offer free access to your credit report. Errors on your file can affect decisions. It is worth checking for mistakes before you apply.
- Use a soft-search eligibility tool. This gives you an indication of your chances without affecting your credit file.
- Compare the total amount repayable. Look beyond the monthly payment to what you will pay in total over the full term.
- Check the lender is FCA-authorised. Use the FCA Register at fca.org.uk before you commit to an application.
- Speak to a free debt advice service if you are already under financial pressure. If you are managing other debts or finding repayments difficult, taking on a new loan may add to the pressure. StepChange (stepchange.org), National Debtline (nationaldebtline.org), and Citizens Advice (citizensadvice.org.uk) all offer free, confidential debt advice.
Frequently asked questions
What is the difference between an unsecured loan and a secured loan?
An unsecured loan is not tied to any asset. If you miss payments, the lender cannot automatically repossess your home or car. A secured loan is tied to an asset, usually your home, which the lender can repossess if you fall behind. One practical consequence is that secured loans often come with lower interest rates because the lender has collateral to fall back on, but the risk to your property is real if repayments stop. For borrowers trying to protect their assets, unsecured borrowing carries a different risk profile.
Can I get an unsecured loan in the UK with bad credit?
Some lenders do offer unsecured loans to people with bad credit, including those with defaults or CCJs on their file. Approval depends on the individual lender's checks, including your income, affordability, and credit history. Approval is never certain and depends on each lender's own criteria. Using a soft-search eligibility checker before applying can help you see your chances without affecting your credit file.
Why are APRs so high on bad-credit unsecured loans?
Lenders charge higher interest rates when they consider a borrower higher risk. Without an asset as security, they have less recourse if repayments stop. That additional risk is typically passed on in the form of a higher APR. As a rough illustration, specialist bad-credit lenders commonly advertise representative APRs of 30% or above, compared with single-digit rates available to borrowers with strong credit histories. It is worth comparing the total amount repayable, not just the monthly payment, before committing.
Will applying for an unsecured loan hurt my credit score?
A full application usually involves a hard search, which leaves a mark on your credit file and can lower your score temporarily. Many lenders now offer a soft-search quote first, which does not affect your credit file. Checking your eligibility via a soft search before a full application is a practical first step.
What happens if I miss a repayment on an unsecured loan?
Missing a payment can result in a late-payment marker on your credit file, a default notice if payments stop entirely, and debt collection action. Although your home or car are not at risk in the same way as with a secured loan, the lender can still pursue you for the debt through the courts, which can result in a CCJ being registered against you.
Is there a maximum amount I can borrow on an unsecured loan with bad credit?
Lenders typically offer smaller amounts to borrowers with bad credit, often starting from a few hundred pounds up to several thousand. Some specialist lenders cap unsecured bad-credit loans at around £5,000, though limits vary. The exact limit depends on the lender's assessment of your income and affordability. Borrowing only what you genuinely need and can afford to repay is always worth considering carefully.
Further reading
For a broader overview of borrowing with a poor credit history, the Bad Credit Loans guide covers the full range of options and things to consider.
MoneyHelper (moneyhelper.org.uk) provides independent guidance on personal loans, including how to compare offers and what to look for in the small print.
The FCA's consumer pages (fca.org.uk/consumers) explain your rights as a borrower and how to check whether a lender is authorised.
Sources: Financial Conduct Authority, consumer credit data and Financial Services Register (fca.org.uk); MoneyHelper, personal loans guidance (moneyhelper.org.uk); StepChange (stepchange.org); National Debtline (nationaldebtline.org); Citizens Advice (citizensadvice.org.uk).
- What is the difference between an unsecured loan and a secured loan?
An unsecured loan is not tied to any asset. If you miss payments, the lender cannot automatically repossess your home or car. A secured loan is tied to an asset, usually your home, which the lender can repossess if you fall behind. For borrowers trying to protect their assets, unsecured borrowing carries a different risk profile.
- Can I get an unsecured loan in the UK with bad credit?
Some lenders do offer unsecured loans to people with bad credit. Approval depends on the individual lender's checks, including your income, affordability, and credit history. Approval is never certain and depends on each lender's own criteria. Using a soft-search eligibility checker before applying can help you see your chances without affecting your credit file.
- Why are APRs so high on bad-credit unsecured loans?
Lenders charge higher interest rates when they consider a borrower higher risk. Without an asset as security, they have less recourse if repayments stop. That additional risk is typically passed on in the form of a higher APR. It is worth comparing the total amount repayable, not just the monthly payment, before committing.
- Will applying for an unsecured loan hurt my credit score?
A full application usually involves a hard search, which leaves a mark on your credit file and can lower your score temporarily. Many lenders now offer a soft-search quote first, which does not affect your credit file. Checking your eligibility via a soft search before a full application is a practical first step.
- What happens if I miss a repayment on an unsecured loan?
Missing a payment can result in a late-payment marker on your credit file, a default notice if payments stop entirely, and debt collection action. Although your home or car are not at risk in the same way as with a secured loan, the lender can still pursue you for the debt through the courts.
- Is there a maximum amount I can borrow on an unsecured loan with bad credit?
Lenders typically offer smaller amounts to borrowers with bad credit, often starting from a few hundred pounds up to several thousand. The exact limit depends on the lender's assessment of your income and affordability. Borrowing only what you genuinely need and can afford to repay is always worth considering carefully.