Bad credit loans

A poor credit rating can make it difficult or more expensive to borrow, as lenders will see you as a risk. A lack of credit history can also make it hard to get credit as there is no information to assess your borrowing habits and determine how you handle your finances. People with a limited or poor credit history or rating who need to borrow, can opt for a bad credit loan, however these usually charge a much higher rate of interest.

What is a bad credit loan?

Bad credit loans (or adverse credit loans) are specifically created for those with a poor credit history, and anyone in employment who is over the age of 18 can apply for one.

This can be a useful service if you are in need of a loan (to consolidate debts, for example), but a poor credit rating means you are struggling to get accepted for one. If you’re hoping to improve your credit rating, then taking out a loan (even a bad credit loan) can help, provided you make your payments on time and in full.

Not all lenders offer these types of loans, though, and you will find that bad credit loans usually have a higher APR, as those with a poor credit history pose a greater risk. There are licensed lenders, sometimes called subprime lenders, who will lend to people who are unable to get credit from a high street bank or building society.

How do bad credit loans work?

There are two types of loan you can take out – secured or unsecured. Unsecured loans tend to be for smaller loan amounts (less than £35,000) and can have a higher rate of interest, but your property won't be at risk if you default on payments. A secured loan, on the other hand, will generally have a lower rate of interest, but your home or other assets could be at risk if you can’t make the payments.

If you are trying to keep the costs down, then repaying over a shorter period of time could mean that you will be charged less interest. However, it's important to consider how much you can afford to pay back each month and any potential changes to your personal circumstances.

Tesco Bank does not offer bad credit loans.

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