If you have a poor credit history, you may have come across loans marketed specifically at people in your situation. They are available, but they come with important considerations that are worth understanding before you apply.
What has been updated
This article brings together current guidance on the key checks to make before applying for a bad credit loan. It draws on up-to-date information from the FCA, MoneyHelper, and Citizens Advice, and reflects current best practice around eligibility checks and credit file protection.
Key points covered in this refresh:
- How applying for a loan can affect your credit file, and how to reduce that risk.
- Why the cost of borrowing is often significantly higher for bad credit products.
- What free options exist before you commit to a loan.
Why it matters
Bad credit loans typically carry higher interest rates than standard personal loans. Because lenders see a poor credit history as a higher risk, they charge more to offset it. That means the total amount you repay can be considerably more than the amount you borrow.
The important bit is this: applying for a loan leaves a mark on your credit file. If you apply to several lenders in quick succession and are declined, those marks can make your credit score look worse, which can make future applications harder.
Who may be affected
This is relevant to you if:
- You have missed payments, a default, a County Court Judgement (CCJ), or other adverse credit markers on your file.
- You have been declined for a standard personal loan and are looking at specialist bad credit lenders.
- You are new to credit in the UK and do not yet have enough credit history to pass standard lending checks.
It may also be worth reading if you are not sure what is on your credit file and want to understand what lenders will see.
What to check before you apply
Use a soft search first. Many lenders and comparison sites now offer an eligibility checker that runs a soft search. A soft search lets you see how likely you are to be accepted without leaving a mark that other lenders can see. Check this before deciding whether to apply formally.
Look at the representative APR carefully. APR stands for annual percentage rate. It shows the yearly cost of borrowing, including interest and certain charges. For bad credit loans, representative APRs are often well above 30% and can be much higher. Use the loan repayment calculator to get a clearer sense of the total amount you would repay.
Check your credit file before applying. You are entitled to see your credit file for free from the three main UK credit reference agencies: Experian, Equifax, and TransUnion. It can help to check for any errors before you apply, as a mistake on your file could be holding your score down unnecessarily.
Consider whether a loan is the right tool. A credit union may offer lower-cost borrowing to members. A budgeting loan from the government may be available if you are on certain benefits. Citizens Advice can help you look at all the options available to you.
Only borrow what you can realistically repay. Use the affordability checklist to work out what a monthly repayment would mean for your budget. Missing repayments on a bad credit loan will make your credit history worse, not better.
What to read next
For the fuller picture on how bad credit loans work, what to expect from the application process, and how they compare to other options, read the evergreen guide: