Last Updated on Dec 24, 2019 by James W

There was once a time when it was near impossible to get a loan if you had a bad credit rating. Some people acquired bad credit through no fault of their own after losing a job suddenly and finding they are unable to pay debts they assumed they could pay. People with no credit history have a bad credit rating by default and find it hard to get their foot on that first rung of the ladder. But thankfully, times have changed. There are specific credit cards, loans and other methods of borrowing money when you have a poor credit rating. These not only lend money that you need now, but help rebuild or build your credit score.

Stop applying for regular loan types

When you are rejected for regular bank loans, credit cards and other traditional methods of borrowing, the worst you can do is apply to an alternative provider of similar standard loans. The rejected application will appear on your credit record and influence the new provider’s decision. The likelihood of another rejection is much higher. With each subsequent rejection, your chances of borrowing money through regular channels decreases. Instead, ask to see your credit rating and understand why it is so low. This is free and easy to do and will help you understand what factors affect your ability to apply for credit.

It will also help you plan what to do next to repair your credit rating and apply for loans with a high chance of approval.

Seek loans designed for bad credit customers

There are many options available today for people with a bad credit score. The current environment means there are more people than ever seek these types of loan. It’s no longer viable to punish people for something that may be beyond their control as so many people share this experience. When looking at credit cards or loans, search specifically for those designed for people with bad credit. You may find that higher interest rates apply due to the greater risk. However, this is not always the case. If you search carefully, you can find some great deals available. Bad credit loans come in many forms, offering you choice based on your personal circumstances.

Which loans should you consider?

In most of the bad credit loan options below, some providers may still check your credit rating. However, other factors will come into play that could lead to a positive outcome. For example, they will be more lenient on the credit score. Others may look solely at your ability to pay now: current income against debt repayment structure.

Guarantor loans

The most popular form of loan available to people with bad credit is the guarantor loan. This essentially grants you a loan based on the agreement of a third party who becomes liable for the loan in the event of a default. It evaluates the credit rating of the third party rather than the person applying for the loan. The guarantor will have to work full time, be of good financial standing, and cannot be a relationship partner or share your bank account. They must demonstrate solvency, good income, and a good credit rating.

Payday loans

These loans have received a lot of bad press due to their high interest rates. It’s important to remember that they are not designed for long-term use. When applied effectively, they can be a great cost saver and help repair your credit rating. People who use payday loans do so when they are short of cash at the end of the month – running out of funds a few days before payday. They are cheaper than using an unauthorised overdraft whose charges can be extortionate. Never dismiss payday loans outright as they could turn out to be your cheapest option.

Peer to peer loans

This is a new phenomenon enabled by the internet and based, in part, on crowdfunding. Rather than borrowing money from a bank, building society, credit agency or loan company, its from individuals – usually strangers. With a peer to peer loan system, the lender sets individual terms including how much interest is repayable, and the period of time over which to repay. The provider assesses an application on ability to pay and does not have access to the applicant’s personal credit score.

Unsecured personal loans

This type of loan is not based on your credit rating which is calculated on past credit events. Instead, it examines your ability to pay now. Long-term unemployment may have affected your credit rating, but it is no reflection on your current ability to pay. If you’ve recently re-entered the world of work and are able to pay the loan, this is of far greater importance. Unsecured loans typically go through a bank or specialist money lender and paid back monthly over several years.

There are many bad credit loans available to people going through or having just recovered from financial difficulty that damaged their credit rating. Why not look at your options?