Personal Loan Options if You Have Bad Credit

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When you have a less than perfect credit rating, personal loans are especially hard to come by. Major lenders in the UK will likely reject your personal loan application because of the high risks you pose on their profits. Some banks may offer loan deals but for a steep price. Not only is the rep APR very high for bad credit loans but there are also hidden fees and other tricks that can increase your loan’s cost some more.

To avoid getting the bad end of the deal, it pays to know what types of loans are available for you if have bad credit. Whether you’re borrowing just the minimum loan amount or you’re looking to borrow a larger amount, here are some of the loan options you can check out:

Payday loans

One of the most controversial loans available for people with bad credit is a payday loan. As the name suggests, these are personal loans that are tied up to your paycheck. Lenders usually require that you provide proof of steady income, that means providing your most recent pay slips. You can then borrow anywhere from £100 to £1,000 to cover for a wide variety of personal needs. The loan needs to be repaid on your next paycheck, usually within 28 days from the date you borrowed the money.

Though widely accessible, there’s one major downside with payday loans. Because there are no credit checks ran on borrowers, the interest rate is pretty steep. The average rep APR for payday loans is 1,000% or more.

Guarantor loans

If you need a larger loan amount and you have bad credit, one option worth checking out is a guarantor loan. Unlike payday loans, guarantor loans are much cheaper in terms of interest rates. In fact, the rep APR is typically below 100%. If you know where to look, you may find a guarantor loan deal at 50% rep APR or below. With guarantor loans, you can borrow larger loan amounts from £1000 to £7,500.

Guarantor loans, however, are not as easy to avail. To be eligible for the loan, you’ll need a guarantor. Unfortunately, it’s not always that easy to find an eligible guarantor. Your guarantor needs to be of legal age, a UK resident and must have good credit. Naturally, the guarantor must agree to co-sign the debt agreement with you. In the event that you are unable to repay the loan, the guarantor basically shoulders the repayments on your behalf.

Logbook loans

Finally, we have here logbook loans uk. These are secured personal loans that require a vehicle for security. If you’re of legal age, a UK resident and a vehicle owner, you are eligible to take out a logbook loan. Since there’s collateral involved, you can borrow even larger amounts than what guarantor loans offer.

In general, loan amounts offer start from £1,000 up to £50,000. The maximum amount you can borrow will depend on your income and car’s official trade value. Repayment terms start from 12 months to 36 months. You can pay your loan weekly or monthly depending on your arrangement with your lender.

Like the other two types of personal loans, there is no credit check involved when assessing your loan application. No matter your credit score, approval is more than likely. Just remember that the biggest risk with logbook loans is the risk of repossession. Since the loan is tied to your vehicle, you may lose your car in the event that you delay or miss payments.

Alternatives to Standard Personal Loans

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Whether you’re in need of quick cash for an immediate financial emergency or a larger amount for a major investment or expense, getting a standard personal loan is often the first option for many borrowers. Unfortunately, it may be harder to obtain approval if you have bad credit under your belt. In this case, you may be better off checking alternatives to these standard loans. Here are some options you can check out:

Loan from family or friends

If what you need is a small sum to pay for an overdue bill or cover for rent, you might want to try taking out a loan from family or friends first. Not only is this route more convenient but there’s also no high interest rates to worry about. Just make sure that you’ll pay the loan on the agreed date. Otherwise, you may be putting your relationships to the test.

Credit union loans

If you’re a member of a credit union, look no further for a quick cash loan at an affordable rate. Since you’re a member, loan processing is often speedy not to mention that the rates may be lower than what banks offer. Even if you have bad credit, you can still apply for said loan.

Cash advance

You can also request for a cash advance from your employer. This is ideal if what you need is a small sum of money you can repay on your next paycheck. Another type of cash advance is the one offered by your credit card provider. Rates are steep, however, so it’s best to consider this as last resort.

Peer-to-peer lending

Another excellent alternative is peer-to-peer lending. In this type of borrowing, you go directly to the lender to apply for a loan. This means that rates are also usually lower than standard loans because there’s no middleman involved.

Best and Cheapest Personal Loan Deals in the UK

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Are you looking for the best and cheapest personal loan deals in the UK? You came to the right place. Though major lenders have raised their interest rates this year, there are still cheap deals you can snag if you know where to look. To save you time and effort, we’ve come up with a list of the most competitive deals you can get your hands on below.

Before you go ahead and sign a deal, remember that lenders have more tricks under their sleeves than you can count. When picking a deal, it’s important to be extra careful. The cheapest deals aren’t always the best deals. To ensure that you’re not going to get bled out with hidden fees, careful planning and budgeting is imperative.

Now for our list of the best and cheapest loans in the UK, here are options you can choose from. For smaller loan amounts, the lowest rep APR is 4.6% but this is depending on the loan amount and repayment term. The best banks to check out for such loans are the following:

  • Zopa – For loans between £1,000 and £1,999, the average rep APR is from 7.7 to 7.9% while loans between £2,000 and £2,999 have a rep APR from 6.9 to 7.9%. If you’re going to borrow at least £3,000 to £4,999, you can avail a much cheaper rep APR from 4.6 to 6.9%.
  • Hitachi – Like Zopa, Hitachi also offers smaller loan amounts using your credit card but with higher interest rates. For loans between £1,000 and £1,999, the rep APR is 12.3% while loans from £2,000 to £2,999 have a rep APR from 7.4 to 12.3%. Finally, for loans from £3,000 to £4,999, the rep APR is much cheaper at around 7.4%.
  • Sainsbury’s – Offering pretty similar rates as Hitachi is Sainsbury’s. For loans between £1,000 and £1,999, expect the rep APR to be somewhere from 12.4 to 12.5%. If you’re going to borrow between £2,000 and £2,999, the current rep APR is from 12.4 to 12.5% while loans from £3,000 to £4,999.

For loans £5,000 or more, the options are more diverse and wider. You can find the best deals from the following banks:

  • Zopa – For loans from £5,000 to £7,499, Zopa charges a rep APR of 4.3 to 4.4% depending on the loan term. For loans from £7,500 to £14,999, the rep APR is cheaper at 3.6%.
  • Sainsbury’s Bank – Another bank that offers one of the cheapest rates in the UK is Sainsbury’s with rep APR of 4.4 to 4.5% for loans from £5,000 to £7,499. For loans from £7,500 to 14,999, the rep APR is from 3.5 to 3.6%. If you’re a cardholder with the bank, rates may be even cheaper.
  • Hitachi – Hitachi also offers competitive rates on their loans. For amounts from £5,000 to £7,499, the rep APR is 4.4%.
  • Marks & Spencer – You’d also want to check out Marks & Spencer. The bank advertises a rep APR of 4.5% for loans from £5,000 to £7,499. If you need to borrow more, you can enjoy a much cheaper rate at 3.6% rep APR for loans from £7,500 to £14,999.
  • Cahoot – Also offering 4.5% rep APR is Cahoot for loans from £5,000 to £7,499. You’ll enjoy cheaper rates, however, for loans from £7,500 to £14,999 at rep APR of 3.6%.
  • First Direct – Finally, we have First Direct offering 3.6% rep APR for loans between £7,000 and £25,000. This is provided that you are a 1st account customer of the bank.

Your Guide to Two Types of Personal Loans in the UK

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If you’re thinking of taking out a personal loan, there are two major types of loans you should know about. Most loan deals available in the market either fall into the secured or unsecured loan category. If you want to know which type is right for you then knowing the difference including each type’s pros and cons is the key. To help you make the right decision, below is all you need to know about secured and unsecured loans.

What are secured loans?

Secured loans are personal loan deals that require a security or collateral. It can be your home, car or any other acceptable asset. Your loan is tied up to the said asset allowing you to borrow larger loan amount usually between £1,000 up to £100,000 or more depending on the value of your collateral. It also follows that repayment terms are longer starting from one year to 25 years.

Among the most common types of personal loans that fall under the secured loan category include mortgage loans, home equity line of credit, auto loans and savings account loans among others. With this type of loan, your lender holds the asset as security. If you’re going to use your car as security, for example, the lender keeps your logbook document. In the event of non-payment, vehicle repossession is always a possibility.

While more risky on your end, secured loans is the best choice if you’re looking to borrow a larger amount. Another chief advantage with this type of loan is the lower interest rate. Since there’s a security involved, the risks are lower on your lenders hence the lower interest rates.

What are unsecured loans?

Unsecured loans, on one hand, are loans that do not require any collateral or security. In other words, it’s the opposite of secured loans. With these types of loans, processing is fast and approval is easy. There are just a few downsides. One, loan offers are smaller usually between £1,000 up to £25,000. Two, interest rates may be higher considering that lenders take greater risks when offering unsecured loan deals.

Among the most common types of unsecured loans available in the UK include credit cards, personal lines of credit, personal signature loans and payday loans specifically offered for people with bad credit. For these loans, lenders rely on your ability to pay based on your proof of steady income and other financial resources if applicable. In some cases, the lender may be open to accept a guarantor provided that said guarantor has good credit and has a steady stream of income.

Which is right for you?

To know which type of personal loan is right for you, you’ll need to look at your needs and financial circumstance. If you have good credit and has an asset to offer as collateral, then getting a secured loan is ideal especially if you need a larger loan amount. Remember though that processing and approval may be more complicated than unsecured loans.

On one hand, if you’re looking for a quick cash solution to your financial needs such as overdue bills or car repair, an unsecured loan is a sound choice. Some unsecured loans, for instance, can be processed within the same day you applied. Just remember that interest rates are also usually higher than secured loans. Secured loans are also ideal for borrowers with bad credit and who can’t get a personal loan elsewhere. Unsecured loans such as payday loans, for example, do not require borrowers to have good credit hence super easy to get approved for.