Credit Building > Which bad credit loans have low interest rates?

Which bad credit loans have low interest rates?

Wollit Team2 minute read · Updated 3rd July 2024

When you’re in a tight spot with money, having a bad credit score can make it very hard to get a much-needed loan at a good interest rate.

However, there are options in the UK for people with bad credit that offer lower interest rates than traditional payday lenders.

Let’s look at the different kinds of bad credit loans with low interest rates, who can apply, and how credit scores affect the lending process.

What are bad credit loans?

Bad credit loans are for people who have had trouble borrowing money in the past because of their credit history. These loans usually have higher interest rates because lenders are taking a bigger risk.

Who offers low interest bad credit loans?

There are a number of lenders and brokers who offer bad credit loans with relatively low interest rates:

118 118 Money: they offer bad credit loans with a representative APR of 49.9% per year.
New Horizons: they have a similar representative APR of 49%.
Ocean Finance: offers a representative APR of 79.5%.

These lenders claim to have a high approval rate and only run a soft credit check initially. However, if you decide to apply for a loan, they will still run a credit check.

It's important to remember that we don't recommend these lenders. Their loans come with high interest rates, which is understandable given the risk they take. However, this also makes the loans risky for you.

If you can't pay back the loan quickly, you'll end up with a growing debt that you might not be able to afford. This can negatively impact your credit history and lead to a cycle of poor financial decisions.

Also, the reason why we included them is because, while their loans are expensive, the interest rates and fees they charge are still much lower than payday lenders.

Moneyboat, for example, offers payday loans that are meant to be repaid quickly. The interest is 0.7% daily, which seems low but with fees adds up to a representative APR of 939.5%.

Finally, you also need to keep in mind that “representative” APR refers to the APR that at least half of applicants were offered.

However, this is not the APR you might get. If your credit score is bad, you'll likely get much higher interest rates because lenders think you might not pay back the loan.

New Horizons, for example, mentions in its website fine print that the rates for loans on its website can vary between a low of 9.3% APR and a whopping maximum of 1,721% APR.

How to get a low interest loan with bad credit?

Simply because you have bad credit doesn’t mean you have to get a loan with unaffordably high interest rates.

Here are your options to lower what you pay:

Compare lenders: Look at different lenders to find the best interest rates and terms for your situation. Don’t limit yourself to the ones we shared. Use eligibility checkers on multiple websites and see what you might qualify for.
Consider secured loans: Secured loans, like homeowner loans, may have lower interest rates but come with the risk of losing your home if you don't pay back the loan.
Consider guarantor loans: If you can find a friend or family member with a good credit score who is willing to guarantee your loan, this can help you get much lower interest rates as well. Just be careful not to strain the relationship.
Improve your credit score.

The good news is that there are many ways to improve your credit score. One of the best ones is to download a specialised credit-building tool like Wollit.

Wollit is an app available both on Android and iOS, and it works by reporting a fixed-fee monthly subscription as a loan repayment to all three credit reference agencies (Experian, Equifax, and TransUnion).

This builds your credit history, which is the main factor that matters if you want to improve your credit score.

Eventually, a better credit history will help you get personal loans with much lower interest rates – as well as other financial products, like credit cards, insurance, and mortgages.