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Bad credit mortgage loans
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48.5% APR Representative
This is a representative example of what it may cost: a Loan of £7,500 over 60 months at 3.3% APR would equate to monthly repayments of £135.60, and the total cost of the loan that you pay back would be £8,136.22.
What are bad credit loans?
Bad credit loans can be a way for you to borrow money if you have been refused credit in the past. They can also be a way of borrowing if you’ve got a lower credit score or no credit history at all and you’re finding it difficult to be accepted for any credit.
Bad credit loans will often come with a higher interest rate though. And you’ll often need to have secured another way to meet your loan repayments in case you find it difficult to pay back the loan in the future.
This could be using the value of your house as a guarantee that you’ll be able to take money from it to then pay back the loan. Or you might have a friend or family who could meet the repayments for you if you weren’t able to.
How do you get a loan with bad credit?
Types of loans for bad credit
- Secured loans: let you borrow money against an asset you own, such as your house, as security that a lender will get their money back
- Guarantor loans: require another person to commit to pay your loan repayments if you miss them
- Peer-to-peer loans: allow you to borrow from individuals instead of a bank
You might be able to take out an unsecured loan if you have bad credit and you can find a friend or family member to be a guarantor for your loan. A guarantor loan won’t use your house or another high value item as repayment security but instead uses your guarantor.
So if you aren’t able to meet your monthly loan repayments then your guarantor will need to be prepared for the fact that they will be expected to pay the loan back. Your guarantor will most likely need to have a good credit score for the loan request to be approved.
A peer-to-peer loan is borrowed from an individual lender rather than through a bank or building society. You can find lenders on a peer-to-peer lending website, where you’ll be matched with individuals who are prepared to let you borrow from them.
You might find that you can borrow more money than a bank or building society will offer you. The interest rates offered on peer-to-peer loans can be lower than the interest charged on standard loans too.
What can you use a bad credit loan for?
A bad credit loan can also be used to consolidate any debts you have into one monthly repayment and potentially lower the interest you’re paying on the debt as a whole. But you will need to make sure you’d still be able to afford the monthly repayments with the new loan deal.
Car loans are the most common loan people aged 18-24 and 45-64 search for, and home loans are the most common loan people aged 65-74 and 75+ search for. Debt consolidation loans are the most commonly searched for loan for 25-44 year-olds, according to MoneySuperMarket data.
Why a bad credit loan might work for you
The benefits of a bad credit loan can include:
- A way of borrowing money: if you’ve got a bad credit score and you’ve been refused credit in the past then a bad credit loan can be a way for you to borrow money
- Rebuild your credit score: a poor credit loan can help to rebuild your credit score and credit history if you meet your monthly repayments
- Quick access to your loan money: your loan will usually be paid into your account within days of your application being approved – and sometimes even immediately. You can make your purchase or consolidate your debts quickly
- Repay over a longer period of time: you’ll be able to choose how long you want to be paying your loan back for, from one to five years to longer
What are the disadvantages of a loan for bad credit?
Some things to be aware of when taking out a poor credit loan include:
- High interest rates: on your poor credit loan monthly repayments. And if you’re repaying the loan over a longer term then you can end up paying back a lot of interest on top of the amount of money you borrowed
- Car or home repossession: if you aren’t able to keep up your repayments on a secured loan then your car or home might be repossessed by the lender
- Difficulty getting a loan if you have bad credit or you’re self-employed: you might find it difficult to get approval for a loan if you have bad credit. The same applies if you’re self-employed because you may not have the guarantee of fixed income to meet the monthly repayments. If you are approved, you may then find that you aren’t able to borrow as much as you wanted
- Loan fees: you may have to pay an arrangement fee to get your loan or early repayment fees (redemption fees) if you want to pay off the balance quicker
- Missed repayments can affect your credit score: if you do miss any loan repayments then the lender can contact the credit referencing agency. The missed payment will be recorded on your credit report and can affect your credit score further
Alternatives to a bad credit loan
Bad credit loan versus overdraft
Some banks will offer a set amount of your overdraft that you can use interest-free (overdraft buffer). You’ll then have to pay interest on the additional money you borrow from your overdraft allowance. You will normally also be charged a usage fee to access the overdraft.
Bad credit loan versus credit card
A bad credit credit card is designed for borrowers who have a lower credit score. The amount you can borrow may be lower than with a loan, but some lenders may increase your spending limit if you do meet your monthly repayments.
Bad credit loan versus payday loan
Compare bad credit loans
Comparing bad credit loans can help you find the loan that works best for you and your situation. Our loans search tool asks you a few questions on how much you’d like to borrow for your loan and how long you’d like to be paying the loan back.
We’ll then ask you about your average income and employment status to show you both affordable loan choices and loans you’re more likely to be accepted for. We’ll also ask you whether or not you’re a home owner so we can show you both unsecured and secured personal loans.
The loan amount, rate and duration you may then be offered if you are accepted when you apply through a provider can be different to the loans you saw because they’ll be based on your credit report and financial situation.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.