If you have a poor credit history (or, if you’ve never borrowed before, no credit history at all) then you may find that getting a loan or other kind of cash advance from a bank or other mainstream lender is pretty difficult. This is because the lender needs to see that you have borrowed money and paid it back in full and on time in the past. This gives them a good idea of what you will be like to lend to, and whether they will get their money back or not!
Below we’ve listed the most common types of loans aimed at those who have bad credit histories. When searching for a loan it’s important to look at the pros and cons of each and to think about how the repayment terms fit in with your life.
Logbook Loans – APR 400+%
These loans are secured against the value of your car, motorbike or van, so for the duration of the loan, the lender will effectively ‘own’ your vehicle. You are allowed to keep using it as normal of course, but if you fail to make any of the repayments, it may be taken from you. Because the loan is effectively secured, your credit history may not be searched. This also means, however, that if you pay your loan back in full and on time, your credit history may not be updated either.
Instalment Loans – APR 300+%
Instalment loans are small loans (up to around £1000) which are paid back over a period of a few months. This allows people to borrow a small amount of cash but pay it back in more instalments, meaning that it’s easier to manage. Your credit history will be checked and your credit file will be affected by how you deal with the loan, so paying this back in full and on time should boost your score.
Guarantor Loans – APR 45+%
A guarantor loan can offer more in the way of lending amounts (up to £7,500) but requires a friend or family member to ‘back up’ the loan application, meaning that if you cannot pay, they will be liable to pay on your behalf. Once again, your credit history will be checked first and will be affected by the way you deal with the loan repayments. The repayment terms are between 1 and 5 years, meaning that a higher loan amount could be made more manageable for you.
Payday Loans – APR 1000+%
You have probably heard of payday loans as they have had a huge market presence in the last few years. These are small, short term loans (up to £1000) which are designed to be paid back by the time the borrower is next paid. This means that the full amount owed needs to be paid back at once, which can be tricky for some people. Your credit history may not be checked but a payday loan on your file will look bad to other lenders and could mean you find it hard to get credit in the future.