If your credit file shows defaults, County Court Judgements (CCJs), an Individual Voluntary Arrangement (IVA), or a long pattern of missed payments, most mainstream lenders will decline your application. Some lenders do operate in this part of the market, but the costs are high and the risks are real. If your credit problems are less severe, the bad credit loans guide covers a wider range of options that may be more suitable.
This article explains what is realistically available to borrowers with very bad credit specifically, what to look out for, and when not borrowing is the more sensible path.
This article provides general information only. It is not financial advice. Everyone's circumstances differ, and what applies in one situation may not apply in another. If you are under financial pressure, free, impartial debt advice is available (see below).
What loans are actually available to people with very bad credit?
The honest answer: options are limited, and the ones that exist are expensive.
Most high-street banks and mainstream lenders use automated credit scoring. A file showing a default, a CCJ, or an IVA will typically result in a decline before a human ever looks at the application. The lenders who will consider very bad credit applicants usually charge significantly higher interest rates to offset the risk they perceive. You are likely to be offered a smaller amount, a shorter term, or both.
The main categories to consider are set out below. None of them are without cost or risk.
What types of lender operate in this market?
Specialist bad-credit lenders
Some FCA-authorised lenders focus specifically on borrowers with adverse credit histories. They carry out affordability checks and credit searches, but they weigh the results differently from mainstream lenders. Rates are typically much higher than standard personal loan rates. The FCA requires all consumer credit lenders to be authorised and to follow responsible lending rules, including assessing whether a loan is affordable for the specific borrower.
Credit unions
Credit unions are member-owned, not-for-profit financial co-operatives. Some offer small, low-cost loans to members regardless of credit history, particularly if you have been saving with them. Under the Credit Unions Act 1979 (as amended) and rules set by the FCA and PRA, interest on credit union loans in Great Britain is capped at 3% per month (equivalent to 42.6% APR), making them considerably cheaper than most high-cost lenders. Membership is based on a shared bond, such as where you live or work. Not every credit union will lend to someone with a very poor credit history, but many take a more flexible view than commercial lenders. The credit unions guide has more detail.
Guarantor loans
A guarantor loan requires someone with a good credit record to co-sign. If you miss a payment, the guarantor is asked to cover it. This means a missed payment affects two credit files, not one. The guarantor also becomes legally responsible for the debt if you cannot pay. Be clear with any potential guarantor about this before proceeding. The guarantor market has contracted significantly in recent years: the FCA's high-cost credit review raised concerns about harm in this sector, and major providers including Amigo Loans ceased new lending, so availability is more limited than it once was.
Secured loans
A secured loan uses an asset, usually your home, as collateral. Some secured lenders accept applicants with adverse credit because the asset reduces their risk. The risk to you is significant: if you cannot keep up with repayments, you could lose your home. Secured lending for people in financial difficulty deserves careful thought. The homeowner loans guide covers this in more detail.
High-cost short-term credit
This includes payday loans and similar products. The FCA introduced a price cap on high-cost short-term credit (HCSTC) in 2015. The cap sets three limits: interest and fees cannot exceed 0.8% per day of the amount borrowed; default fees are capped at £15; and the total cost (interest, fees, and charges combined) can never exceed 100% of the original loan amount, meaning you will never repay more than double what you borrowed. Full details are available at fca.org.uk. Even with these caps, these products are expensive and are designed for short-term gaps, not ongoing financial pressure. If you are considering this route because you need money for essentials, free debt advice is a safer starting point.
What to check before applying
A useful first step is to look at your credit file before you apply anywhere. You can check your file free of charge through the three main credit reference agencies: Experian, Equifax, and TransUnion. Knowing exactly what is on your file helps you understand what lenders will see and whether any errors can be corrected.
Check for soft-search tools first. Many lenders and comparison services offer an eligibility check that uses a soft search. A soft search does not leave a visible mark on your credit file. A full application triggers a hard search, which does leave a mark and can lower your score if done repeatedly. It can help to use soft-search tools to gauge your chances before committing to a full application.
Check the total cost, not just the monthly payment. A loan's APR tells you the annual cost including interest and fees. Because bad-credit loans carry higher rates, the total amount you repay over the loan term can be substantially more than the amount you borrowed. The loan repayment calculator at /tools/loan-repayment-calculator/ can help you work out the full cost before deciding.
Check whether the repayment is genuinely affordable. Lenders are required to carry out affordability checks. You may want to work through your own budget first, using the budget planner or the affordability checklist, so you have a clear picture before any formal application.
Risks and warnings
There are several risks specific to this part of the credit market.
Very high rates. Representative APR figures for bad-credit loans can reach hundreds of per cent for short-term products, and significantly above mainstream rates even for longer-term specialist loans. To illustrate: a hypothetical £300 loan at 150% APR over 6 months could result in total repayments of around £450, meaning £150 in interest and charges on a modest sum. You can test figures for any loan you are considering using the loan repayment calculator. A lower monthly payment may simply mean a longer repayment period and a higher total cost.
Loan sharks and unlicensed lenders. If you have been refused by authorised lenders, you may be approached by or come across unlicensed moneylenders. Borrowing from an unlicensed lender is dangerous. They are not regulated, they do not follow consumer protection rules, and the consequences of missing a payment can be severe. You can verify whether a lender is FCA-authorised using the FCA Register at fca.org.uk. If you believe you are dealing with a loan shark, you can report them to the Illegal Money Lending Teams, which operate separately in England (0300 555 2222), Scotland (0800 074 0878), and Wales (0300 123 3311).
Repeated applications and hard searches. Applying to multiple lenders in a short period leaves multiple hard searches on your credit file. This can make your file look more risky to the next lender you approach, making approval less likely, not more. Use soft-search tools where possible.
Secured borrowing when finances are already stretched. If the loan would be secured on your home and you are already under financial pressure, the risk of losing your home is real. Be careful if you are considering a secured loan as a last resort.
Debt that compounds existing problems. If you are already missing payments on existing debts, a new loan is unlikely to resolve the underlying situation. In this case, free debt advice is usually a better first step than applying for another loan.
When not borrowing is the right answer
Sometimes the answer is not to borrow at all.
If you are already struggling to meet existing payment obligations, taking on new credit will add to the pressure. If the money is needed for everyday essentials like food, heating, or rent, there may be alternative sources of help that do not involve debt: local authority hardship funds, food banks, energy provider support schemes, and benefits you may not be claiming.
MoneyHelper's debt help guidance and their benefits calculator can help you identify these options before you consider a loan.
Free debt help
If you are worried about existing debts or are under financial pressure, please speak to a free debt advice service before applying for any new credit.
- StepChange Debt Charity: 0800 138 1111 (freephone) or stepchange.org
- National Debtline: 0808 808 4000 (freephone) or nationaldebtline.org
- MoneyHelper: 0800 138 7777 (freephone) or moneyhelper.org.uk
These services are free, confidential, and impartial. They can help you understand all your options, including ones that do not involve borrowing.
Frequently asked questions
Can I get a loan in the UK with very bad credit?
Some lenders do offer loans to people with very bad credit, including defaults or CCJs. However, the rates are typically very high and the amounts available are usually small. It is worth checking whether free debt advice might address your situation before applying.
What counts as 'very bad' credit in the UK?
Very bad credit generally means your credit file shows one or more of: a default, a CCJ, an IVA, bankruptcy, or a pattern of missed payments. Lenders treat these as significant risk markers. Note that if you are currently bankrupt, most lenders will decline any application for credit, and borrowing above a set threshold without disclosing your bankruptcy status is a legal offence.
Can I get a loan with an active IVA?
It is possible but difficult. An active IVA is a formal insolvency arrangement and most mainstream lenders will decline automatically. Some specialist lenders may consider applications, but your IVA supervisor's consent may be required before you take on new credit, and the terms of your IVA should be checked first. Free debt advice services can help you understand your position.
Will applying damage my credit score further?
A full application usually triggers a hard search on your credit file, which leaves a visible mark. Multiple hard searches in a short period can push your score lower. Using a soft-search eligibility check first avoids this.
What is a credit union loan and is it worth considering?
Credit unions are member-owned financial co-operatives. Some offer small loans to members regardless of credit history, often at lower rates than high-cost lenders: by law, interest is capped at 3% per month (42.6% APR) in Great Britain. Membership criteria vary, so it is worth checking whether a local union accepts you.
Is a guarantor loan an option?
A guarantor loan may be available if someone with a good credit record agrees to cover repayments if you cannot. Missed payments affect both your credit file and your guarantor's. The guarantor takes on real financial risk, so this arrangement requires an honest conversation. Availability has reduced in recent years following regulatory scrutiny and the exit of major providers from the market.
When is not borrowing the right answer?
If you are already missing payments, using credit to cover everyday costs, or have debts you cannot manage, taking out another loan is likely to make things harder. Free debt advice is usually a more useful starting point in this situation.
Related guides
Sources
- Financial Conduct Authority (FCA): fca.org.uk, consumer credit regulation, FCA Register, HCSTC price cap (0.8%/day, £15 default fee cap, 100% total cost cap)
- FCA high-cost credit review: PS19/23 and related policy statements on guarantor lending
- Credit Unions Act 1979 (as amended); FCA/PRA rules on credit union interest rate caps
- MoneyHelper: moneyhelper.org.uk, debt guidance, benefits calculator, budgeting tools
- StepChange Debt Charity: stepchange.org, free debt advice and support
- Illegal Money Lending Teams (England, Scotland, Wales): reportaloanshark.com
- Can I get a loan in the UK with very bad credit?
Some lenders do offer loans to people with very bad credit, including defaults or CCJs. However, the rates are typically very high and the amounts available are usually small. It is worth checking whether free debt advice might address your situation before applying.
- What counts as 'very bad' credit in the UK?
Very bad credit generally means your credit file shows one or more of: a default, a County Court Judgement (CCJ), an Individual Voluntary Arrangement (IVA), bankruptcy, or a pattern of missed payments. Lenders treat these as significant risk markers.
- Will applying for a loan with bad credit damage my credit score further?
A full application usually triggers a hard search on your credit file, which leaves a visible mark. Multiple hard searches in a short period can push your score lower. Using a soft-search eligibility check first avoids this.
- What is a credit union loan and is it better for bad credit?
Credit unions are member-owned financial co-operatives. Some offer small loans to members regardless of credit history, often at lower rates than high-cost lenders. Membership criteria vary, so it is worth checking whether a local union accepts you.
- Is a guarantor loan a good option if I have very bad credit?
A guarantor loan may be available if someone with a good credit record agrees to cover repayments if you cannot. Be aware that missed payments affect both your credit file and your guarantor's. The guarantor takes on real financial risk.
- When is not borrowing the right answer?
If you are already missing payments, using credit to cover everyday costs, or have debts you cannot manage, taking out another loan is likely to make things harder. Free debt advice is usually a more useful starting point in this situation.