Credit Building > Which loans can you get with a poor credit score?

Which loans can you get with a poor credit score?

Wollit Team5 minute read · Updated 3rd July 2024

Having a low credit score can be a real issue if you’re looking to get a loan. However, there are loans for people with poor credit scores out there. They might not have the best terms or the lowest interest rates, but they exist.

Let’s have a look and see if they’re right for you.

What kind of loans can I get with a poor credit score?

If you have a poor credit score, there are three main kinds of loans for you: “bad credit” loans, secured loans, and guarantor loans.

Bad credit loans are unsecured personal loans meant specifically for people with poor credit scores. These loans are offered by specialist lenders who look at things beyond just your credit history when considering your application.

With a bad credit loan, you can usually borrow between £50 and £2,000 over a short term of a few weeks to a few months. The interest rates tend to be fairly high, though, with representative APRs as high as 800%.

The second kind is secured loans. These loans are secured against something of value, usually your home, so you'll need to own your home outright or have a decent amount of equity in it. Lenders typically allow you to borrow up to 85-95% of your home's equity. Because of this, they’re also often called “homeowner loans”, where your home acts as collateral.

This allows you to access a larger loan amount (often above £100,000), often at a lower interest rate than an unsecured personal loan.

However, it's important to remember that if you fall behind on repayments, your home could be at risk of repossession. Homeowner loans also require you to own a property outright, which not everyone has.

The third kind of loan available to people with poor credit is guarantor loans. Guarantor loans allow someone with poor or even no credit history to borrow money by having a guarantor (usually a friend or family member) agree to make the loan repayments if the borrower cannot.

Of course, the guarantor must have a good credit history and also must be able to afford the loan repayments if needed. They are legally responsible for repaying the loan if the borrower defaults, after all.

However, if you take out a guarantor loan, any missed payment will hurt both your credit scores. It could also strain the relationship between you and your guarantor. Because of this, not everyone can get a guarantor to back their loan application. Even if you can find a guarantor, make sure that they understand what they’re signing up for.

Which UK lenders or brokers offer loans to people with poor credit scores?

The UK has quite a number of lenders and brokers that offer loans to people with poor credit scores.

Here are some of the biggest ones:

Pepper Money. They offer “mortgages to first-time buyers, home movers, and landlords who are often overlooked by high street lenders.”
Bluestone Mortgages. They claim to work with “people that don’t fit the traditional profile of high street banks.”
Vida Homeloans. This is a specialist mortgage lender that claims to use behavioral data and cutting-edge technology to simplify the process for bad credit mortgage applications. However, to get one of their mortgages, you have to find a mortgage adviser via Unbiased – they don’t offer mortgages directly.
Fast Loan UK. This is a direct broker that offers low credit score loans between £50 and £2,000. They also provide instant decisions and quick payouts, although the APR is as high as 840%.
Cashfloat. Claiming to be a “direct lender for all credit scores'', Cashfloat offers bad credit loans up to £2500 with quick and easy applications. Representative APR is 611%.
Moneyfacts. Moneyfacts is a comparison service that lists specialist lenders that accept applications from those with bad and very bad credit. Representative APR is between 39% and 99%, and they also offer a pre-approval service which does not affect your credit score.

None of these direct lenders or brokers offer particularly great terms. APRs are incredibly high, amounts are small, and repayment terms short. But if you have a poor credit score, you might be limited to these options. We don’t endorse any of them, and make sure to read very carefully the terms and conditions of any bad credit loan you take to make sure that you can actually afford it.

How do specialist lenders differ from mainstream banks?

The lenders we mentioned (and others like them), differ from mainstream banks in several key ways:

Specialist lenders use manual underwriting, meaning they look at each application on a case-by-case basis. Mainstream banks often have more rigid criteria and use automated, computer-based underwriting.
Specialist lenders are also more experienced dealing with borrowers with “non-standard” financial situations, like self-employed people or people who’ve been bankrupt in the past.
They are also more accessible, since most of them only do business online, meaning you don’t need to go to a bank branch and bring documents with you.
They are also more willing to lend to higher-risk applicants.
However, because of the higher risk profile of their target market, specialist lenders often charge much higher interest rates compared to mainstream banks. They also have quite a lot of fees besides interest as well, so make sure to check the APR (which includes the fees) and not only the interest rate alone.

What do specialist lenders care about when looking at my loan application?

When applying for a loan with a poor credit score, lenders will look at several factors beyond just your credit score:

Income and employment: Lenders want to know that you have a stable source of income to make your loan repayments.
Affordability: Lenders will also calculate whether you can comfortably afford the loan repayments based on your income and expenses.
Existing debt: Lenders will consider any other debts you have, such as credit cards or personal loans, and how much of your income is already committed to those repayments.
Credit utilisation and recent credit checks: Lenders may also look at signs that you’re under financial stress, like how much your available credit you are currently using, or whether you’ve made many loan applications recently.

In other words, lenders that offer bad credit loans often have to look at the whole picture to understand what your financial situation actually is. This also explains their higher APRs – their manual checks are included in the high fees.

What are the risks of getting a loan when I have a poor credit score already?

While bad credit loans can provide a solution if you have a poor credit score and need money, you should be aware of the potential risks:

High-interest rates: Bad credit loans often come with much higher interest rates than loans for people with good credit. This means you'll pay back quite a bit more in total over the life of the loan, often much more in interest and fees than the loan itself.
Short repayment terms: Many bad credit loans have short repayment terms, such as a few weeks or months. This can make it difficult to keep up with repayments, which can make your credit score even worse.
Debt trap: If you rely on bad credit loans to pay back other debts, you may find yourself in a cycle of debt that is difficult to break. Most bad credit loans, especially the unsecured ones, are not meant to be “rolled over”, and if you do, you may find that you can’t afford the interest charges.
Hidden fees: Speaking of charges, many bad credit lenders may also charge fees that are not obvious, such as late payment fees or early repayment fees. Be sure to read the terms and conditions carefully to understand what you’re signing up for.

If you are struggling with debt, you might want to first do these three things before getting a bad credit loan:

Ask friends and family for money instead. You can use an app like Pigeon, for example, to make the loan a bit more formal and to make sure that they feel comfortable with the loan.
Seek advice from a free debt advice service before taking out a loan. You can check the UK Government for a list of the approved debt advice charities.
Most importantly, take steps to improve your credit score and credit history.

Luckily, now there are many apps that can help you build and improve credit. One such app is Wollit.

Wollit reports your fixed fee monthly subscription as a loan repayment to the credit reference agencies (Experian, Equifax, and TransUnion).

This helps you improve your credit history by showing that you can pay debt on time, one of the main factors that influences your credit score.

On top of this, Wollit can also report your monthly rent payment to Experian, adding another line in your credit report that shows lenders you're responsible and pay your bills on time. Eventually, this can help you get the loans you want on the terms you want, and without needing a guarantor or putting your home on the line.