Getting a Loan With Bad Credit: Your Options and What to Watch Out For

Being told no by every mainstream lender is one of the most frustrating financial experiences there is — especially when you genuinely need the money. The good news is that bad credit doesn't mean no options. The not-so-good news is that the wrong choice can make things much worse.

Here's a clear-eyed look at what's actually available, what to avoid, and how to borrow now without trapping yourself in a worse position later.

Can you get a loan with bad credit?

In most cases, yes — but probably not from the lenders you'd think of first. The mainstream banks and building societies have strict cutoffs that make borrowing difficult with weak credit. But there's a whole tier of specialist lenders, alongside credit unions and other alternatives, who price for risk rather than refuse it.

The trade-off is straightforward: higher rates, smaller amounts, sometimes shorter terms. Used carefully, a bad-credit loan can solve an urgent problem and rebuild your credit at the same time. Used carelessly, it can deepen the hole.

What options are available?

The main routes for borrowers with bad credit:

• Specialist personal loans: Higher-rate unsecured loans from lenders like Lendable, Salad Money or 118 118 Money
• Guarantor loans: A friend or family member backs the loan in case you default
• Secured loans: Loan tied to an asset (usually your home)
• Credit union loans: Not-for-profit local lenders with fairer rates
• Credit-builder cards: Not strictly a loan, but useful for rebuilding
• Buy Now Pay Later / instalment plans: Convenient but risky if misused

What you should generally avoid: payday loans, doorstep loans and rent-to-own products. The cost is rarely worth it, even in emergencies.

Guarantor loans explained

A guarantor loan involves a second person — usually a friend, parent or relative — agreeing to take over repayments if you stop paying. The guarantor's good credit and stable income make the lender comfortable lending to you.

Key points:

• Typical amounts: £1,000-£15,000
• Typical APRs: 25-50%
• Terms: 1-7 years
• Both borrower and guarantor's credit is checked
• Defaults affect both parties

The risk isn't trivial. If you miss payments, the guarantor becomes legally responsible for repaying the debt, and their credit file takes a hit. Family relationships have been ruined by guarantor loan defaults. Take them seriously.

Secured loans and the risks

A secured loan is backed by an asset, usually your home. The lender registers a charge on the property, giving them the right to force a sale if you default.

Secured loans:

• Often offer lower rates than unsecured bad-credit loans (because the lender's risk is lower)
• Allow larger amounts (£10,000+)
• Can have longer terms (10-25 years)
• Put your home at genuine risk if you can't pay

For homeowners with bad credit who need a substantial amount, a secured loan can look tempting. But the consequences of falling behind are severe. Only consider one if you're confident in your ability to repay throughout the term — and if you've already exhausted lower-stakes options.

Use our loan repayment calculator to model the monthly cost and total interest before committing.

Credit union loans

Credit unions are not-for-profit financial cooperatives owned by their members. They tend to be much more flexible than mainstream lenders about credit history, focusing instead on your overall situation and your savings habit with them.

Reasons to consider a credit union:

• APRs capped at 42.6% by law (most are 12-26%)
• Flexible criteria for people with credit issues
• Often willing to lend small amounts mainstream lenders won't bother with
• Decisions made locally — you can sometimes discuss your situation in person
• Many offer regular saving alongside borrowing, which builds financial resilience

Finding your local credit union takes about two minutes at findyourcreditunion.co.uk. Membership usually requires either living in a specific area or working in a particular sector.

Why you should avoid payday loans

Payday loans are short-term, very high-cost loans designed to bridge to your next payday. While reforms in 2015 limited charges and made them less catastrophic than they used to be, they remain one of the most expensive forms of credit available.

The problems:

• Often 1,000%+ APR (the FCA caps interest at 0.8% per day plus £15 default fee)
• The lump-sum repayment structure traps many borrowers in repeat borrowing
• Heavy use of payday loans is visible on your credit file and hurts future applications
• Easy to take out, much harder to repay

If you're considering one, exhaust these alternatives first:

• Talk to your creditors about payment holidays or reduced payments
• Ask your employer about salary advances
• Check whether you qualify for hardship grants from your local council
• Get free advice from Citizens Advice or StepChange before borrowing
• Consider a credit union short-term loan instead

The same is true of doorstep lenders and rent-to-own electrical goods — both should be avoided wherever possible.

How to compare bad credit loans properly

The biggest mistake is comparing monthly payments. A lower monthly payment over a longer term can cost you thousands more in total interest. Always compare:

1. Total amount repayable. Monthly payment × number of months. This is your true cost.
2. APR. Standardised, includes fees.
3. Term length. Shorter is almost always cheaper.
4. Early repayment terms. Can you pay it off early without big penalties?
5. Eligibility likelihood. Use soft-search checkers.

For complex situations — multiple debts you want to combine, for example — our debt consolidation calculator can help you compare scenarios properly.

The true cost of high interest borrowing

A few realistic examples to put numbers around it:

• £3,000 over 3 years at 9% APR: Monthly £95, total cost ~£3,430
• £3,000 over 3 years at 25% APR: Monthly £119, total cost ~£4,289
• £3,000 over 3 years at 49% APR: Monthly £150, total cost ~£5,405
• £3,000 over 5 years at 49% APR: Monthly £124, total cost ~£7,470

That last example illustrates why longer terms are deceptive. A £124/month payment looks more affordable than £150/month — but you'd pay £2,000 more total interest by stretching the term.

If you have to borrow at high rates, borrow as little as possible and over as short a term as your budget can absorb.

How to improve your chances

Even with bad credit, a few steps can improve your acceptance odds:

• Register on the electoral roll
• Pay down any high-utilisation credit cards
• Check your credit file for errors and dispute them
• Don't apply for multiple loans in quick succession — space them out
• Use soft-search eligibility checkers before any formal application
• Apply for the smallest amount that solves your problem
• If your income is irregular, be ready to evidence it carefully

Our credit improvement guide covers the longer-term picture.

Steps to take before applying

A practical sequence to follow before any bad-credit application:

1. Check all three credit files (Experian, ClearScore for Equifax, Credit Karma for TransUnion)
2. Identify and dispute any errors
3. Work out exactly how much you need and what you can afford to repay each month
4. Research credit unions in your area first — they're usually the cheapest option
5. Use comparison sites' bad-credit-loan eligibility checkers (soft search only)
6. Compare shortlisted options on total cost over the term
7. Apply to one lender — the one most likely to accept and offer the best rate

Most bad-credit loan disasters come from skipping steps. Slowing down protects you from making things worse.

How to rebuild after bad credit

The good news: taking out a bad-credit loan and repaying it on time can actually rebuild your credit. Every on-time payment lands as positive evidence on your file, and over a year or two of clean repayments your score should improve meaningfully.

The rebuilding strategy:

• Pay every monthly payment on time, every time (set up a direct debit)
• Avoid taking on other new credit while the loan is active
• Pay down credit card balances alongside the loan
• Stay on the electoral roll
• Check your credit file every few months to track progress

After a year or two of clean payments — combined with the loan being part-paid or paid off — you'll usually qualify for much better products. The bad-credit loan, painful as it might be initially, can be the bridge to a much healthier financial future.

Frequently asked questions