Having a bad credit history doesn’t necessarily mean you can’t borrow. We explain what lenders will look for and how you can borrow with a bad credit score.
Whether it’s a credit card, a loan or car finance, your credit score is the all-important factor that determines if you will be approved to borrow or not. But having a poor credit history isn’t the end of the world for borrowers and it is possible to borrow with bad credit.
A poor credit score can put limitations on your borrowing, such as lowering what you might be approved for or increasing the interest rate you pay. With the right approach and research though, borrowing with bad credit can help you achieve your goals. It might even help improve your financial situation over time.
Borrowing with bad credit
Borrowing with bad credit isn’t that different from borrowing with good credit. The process will mostly be the same, with applicants having to provide details, including:
- Name and address history (for the past three years)
- Employment status
- Spending on essentials (such as rent or mortgage and bills)
When applying for a loan, it’s always important to be honest, even if you have a bad credit history. Omitting certain details or lying on your application could invalidate your agreement with a lender, which might lead to you having to pay back the balance in full.
It’s also important to take your personal circumstances into account before you apply. Consider what you can comfortably afford to repay each month and avoid stretching your finances too far. If you borrow more than you can afford, you may end up defaulting on payments, which can lead to penalties and negatively impact your credit score in the long run.
Can you borrow with bad credit?
If you have a low credit score, then it’s unlikely you’re going to be able to access the best loan deals and interest rates – but you can still borrow money. Many lenders will be able to offer you a bad credit loan, which is designed to allow those with a poor credit history to borrow, while lowering the risk for themselves.
What are bad credit loans?
Bad credit loans are essentially a type of personal loan. These loans can be secured or unsecured and can be used for any number of purposes, including:
- Car finance
- Home repairs and maintenance
- Debt consolidation
- Other large purchases
For the most part, these loans aren’t much different to a standard loan product, but there are likely to be differences within the terms.
Due to your low credit score, lenders may see you as being higher risk, so they will put in place more stringent terms. Examples of this might include a higher rate of interest, which will mean you pay more money back overall, and lower loan values, which might mean you can only borrow less than you originally intended.
Borrowing with a guarantor
In some cases, your credit history might make it difficult to borrow, due to factors such as a history of missing payments, defaulting on loans or being served a county court judgement (CCJ). Even if you are rejected when you apply, it doesn’t mean you won’t be able to borrow in the future.
One way to increase your chances of a loan application being approved is to consider a guarantor loan. These are a type of personal loan designed with bad credit in mind. They allow applicants to nominate a guarantor – typically someone who has a higher credit score – who will sign the loan agreement along with the person borrowing money. The guarantor is used as an extra level of insurance by the lender, as they will agree to take on responsibility for repayments if the person borrowing is unable to do so.
One of the biggest advantages of a guarantor loan is that they lower the risk in the eyes of a lender. Because someone else is also responsible for the loan, it means you might be able to access lower rates of interest, which can mean you’ll repay less, as well as improving your chance of being approved for credit.
Pros and cons of borrowing with bad credit
If you already have a bad credit score, it can seem a bit daunting to take on more borrowing. The good news is that doing so can have a positive impact on your credit score – as long as you manage it well.
A history of borrowing and always making your repayments on time means lenders will be able to see you can handle your finances in a responsible way, so your credit score should improve over time. This means you may have access to some of the best deals further down the line.
However, it’s important to only borrow what you can afford to repay. Because interest rates are likely to be higher for bad credit loans, you’re going to be paying a higher amount per month to cover this, on top of repaying the amount you’ve borrowed.
With this in mind, it’s important to always do your homework before you apply for a loan or any other type of finance. Make sure you’re aware of what the monthly repayments look like and use a budgeting calculator to be certain you’ll be able to comfortably afford this amount after you’ve paid your bills, rent or mortgage, as well as any other essential outgoings.
Stretching yourself too far could mean you struggle to make your repayments, which might mean that your credit score falls even further. This will make it harder for you to get finance in the future.
Bad credit history doesn’t mean you can’t borrow. With the right loan product and some careful budgeting, you could still get access to funding that suits your own circumstances. Find out more about bad credit loans with Norton Finance.