For people with poor credit, it can seem like an uphill struggle to find a loan company willing to lend them money. It sometimes feels like people who don’t need money can access it easily and the people who really need the money are always having obstacles put in their way.

All is certainly not lost though. Oyster Loan, one of the UK’s fastest-growing bad credit loan brokers, has put together this guide for people whose credit history isn’t perfect on the top 10 credit options for borrowers with bad credit.

What is a bad credit rating?

First of all, let’s start with what a credit rating is and what makes one either good or bad.

A credit rating is a score that credit reference agencies give you based upon a number of different factors. Although lenders consider your credit rating when you apply for a loan, it’s not the only thing they think about but it’s certainly a major factor.

The following information goes into a credit rating –

Payment history

There are two types of companies which send credit reference agencies details on whether you make repayment or you miss a repayment. They are:

• finance companies
• consumer-focused companies (particularly mobile phone companies, broadband providers, gas and electricity providers, and so on)

When you make a repayment on time and in full, this will strengthen your credit score. If you miss one or two repayments over the course of a couple of years, not that much damage will be done to your credit score however if it becomes a regular thing, your credit score will reduce will go down by a lot.

Default history

If you’ve missed quite a lot of repayments, particularly to a finance company, they may declare that your account with them is in “default”. Defaults always have a significantly negative rating on your credit score.

Quite often, if you miss a repayment, you will speak to one of your finance company’s customer service team and, between you, you’ll work out how to get back on track with your account. If it happens a few times and you don’t make a repayment when you’ve committed to making one, that’s when they’ll say that you’ve defaulted and they then tell the credit reference agency.

One of two things happens at this stage. You can agree to settle the amount owing (either in full or with smaller repayment amounts) or the finance company will decide that they don’t think that they’ll get their money back and they’ll take you to court to try to obtain a County Court Judgement instead (more on those later).

Lack of credit history

One of the most frustrating things, particularly for younger people, is being denied access to finance because they haven’t had a chance to build up a credit history yet. It can be harder for an 18-year-old to get a credit card than someone with a large mortgage, big car loan, and a stack of credit cards. It seems unfair, doesn’t it?

The only reason that many lenders think like this is that the person who has accumulated all of this debt has a proven history of making their repayments on time. There are, however, lenders who are much more relaxed with a lack of credit history and we’ll be discussing those lenders later on in this article.

One of the great unfairnesses to many younger people without a credit history is that they meet their rent payments month after month, however, unlike mortgage payments, successful rent payments aren’t reported to credit reference agencies. Although the government are currently trying to change this, it means that renters don’t get credit to pay their rent every month.

Number of addresses you’ve lived at

Did you know that many men and women serving in the British Army and the other Armed Forces have trouble getting loans, credit cards, and mortgages? The reason they have problems is that they generally don’t live at the same address for a long period of time. Our servicemen and -women are often abroad serving the country and they will get back to find that they’re being moved to different barracks.

The same principle applies if you move around a lot. If you move every six months, your lender will become concerned that you’ll be difficult to get hold if they need to write you a letter because you’ve fallen into arrears.

The amount of debt you have and the amount of debt you have available to you

If someone has five credit cards with a combined limit of £20,000 and they’re really close to the limits on all their cards, this makes many lenders worry that an applicant is living an unaffordable lifestyle and that they will not have enough spare cash at the end of the month to make a repayment.

However, if another person with five credit cards with a combined limit of £20,000 has only spent £5,000 or £6,000 on their cards, this gives lenders much greater peace of mind that the person applying for money handles credit responsibly and that they are not using debt to pay for their lifestyle.

County Court Judgements, Individual Voluntary Arrangements, Debt Management Plans, and Bankruptcy Orders

Lenders take borrowers to court to obtain a County Court Judgement which gives them more power to take action to recover money that a borrower owes them. If a debt is above a certain size, a lender may serve a “statutory demand” against a borrower to force them into bankruptcy. If they are successful in doing this, they will try to make a borrower sell their home so that enough money is released to pay a debt off in full.

You can not borrow money without your liquidator’s permission if you are bankrupt. Nearly all finance companies will not lend money to people who have been declared bankrupt.

Likewise, many finance companies feel very uneasy about lending money to borrowers who have had County Court Judgements awarded against them. The same is true for people who currently have a debt management plan or have entered into an Individual Voluntary Arrangement (a bit like bankruptcy but not as severe).

Number of times you apply for finance

Lenders get nervous if they see that a potential borrower has been making lots of applications for loans or credit cards within a short space of time. Many lenders think that a person who is constantly applying for credit is going through a severe cash shortage and that they are trying to find money in any way they can.

This may sound unfair because a borrower may just be wanting to get the best deal for themselves. However, it is unlikely that a lender would accept this reason and then go on to advance a borrower a loan.

Top 10 credit options if you have a bad credit history

1. Payday loan

Payday Loans are a very well-used and popular form of finance used by millions of British citizens every year.

With a payday loan, you borrow a certain amount of money and pay it all back plus the interest in one go. Normally, people choose the next day on which they’re paid their wages to repay the loan. Most lenders will allow you up to 30 days to pay the loan back in full after you’ve taken it out.

Key facts:

• Payday loan companies don’t require a guarantor.
• You can normally borrow up to £1,000 on a payday loan, higher for repeat customers.
• Payday loan companies put less emphasis when making a decision to lend you money on your credit report (they’re more concerned about who you are today and your personal situation).
• Interest rates on payday loans can be high.
• You don’t need to put any security down to obtain a loan.

2. Guarantor loan

With a guarantor loan, someone you know promises to pay the outstanding amount back of a loan made to you if you can’t make the repayments.

Let’s say that you borrowed £5,000 but you then fell on hard times and you still owed £2,500 on a guarantor loan. Your guarantor would then have to pay that £2,500 back instead of you.

Key facts:

• You can borrow up to £10,000 with a guarantor loan.
• You can choose up to 10 years to pay back the loan.
• Borrowers with bad credit ratings are considered but your guarantor needs to have a very strong credit rating.
• Guarantor loans are NOT regulated by the Financial Conduct Authority meaning that borrowers don’t enjoy the legal protections offered on a payday loan or a short-term loan.
• The amount of interest you pay back over the full length of a loan can be higher than the interest you’d pay back on a smaller payday or short-term loan.
• Your relationship with your guarantor may be seriously damaged if they are called upon to pay your loan back.
• The sector is currently under investigation by the Financial Conduct Authority over excessive interest charges and default fees.

3. Bad credit loan

A bad credit loan is just like a payday loan but, instead of paying the loan and interest back all in one go, you can choose up to 12 monthly repayments to pay it back in full.

By stretching a loan out over a longer period of time, you can reduce the amount you pay back every month although the amount of interest you pay back on the loan will be more.

Key facts:

• Bad credit loans (sometimes called short-term loans or instalment loans) don’t require you to provide a guarantor.
• With bad credit loans, you can normally borrow up to £2,500.
• As the name of the product suggests, applicants with bad credit histories will be seriously considered
• The interest rates on bad credit loans can be much higher than on other types of loan
• You don’t need to offer up any type of security to successfully apply for a loan.

4. Peer to peer lending

Peer-to-peer lending is a new type of finance where people with money are matched with people who need money via an internet site. Think Funding Circle for businesses or Zopa for consumers.

Key facts:

• Interest rates on offer can be lower than offered by banks (although applicants with poor credit histories, if accepted, will likely pay an interest rate significantly higher than the banks)
• Borrow up to £25,000
• Loan lengths from 1 year to 10 years
• No security is required on most platforms
• If you need money quickly, it can take up to 7 days to get a loan
• If you’re looking for a few hundred pounds and not a few thousand, this is not the right route for you.

5. Poor credit rating credit card

There are three credit cards for every man, woman, and child in the UK – it’s Britain’s most popular form of credit.

With a credit card, you get a limit and you can spend up to that limit. You can make a minimum repayment every month of as little as 1% of whatever you’ve spent. Credit cards are accepted by millions of companies worldwide and you can transfer cash from your remaining balance directly into your current account.

Key facts:

• Interest rates are generally lower than on payday loans, bad credit loans, logbook loans, and guarantor loans
• Credit card companies will often put up your limit without your asking them
• Encourages many people to spend money on non-essential items
• It can take years to pay back your balance if you only make the minimum repayment
• Expensive to withdraw cash at a cashpoint
• Takes 7-10 days to apply for and receive a credit card so, if you need money in a hurry, this would not be suitable for you.

6. Logbook loan

A logbook loan is a type of secured loan on your car. You can borrow large sums of money with a logbook loan (normally up to £50,000) and you can receive the money from some providers within a few hours.

Key facts:

• Borrow up to 75% of your car’s value
• Your car becomes the property of the logbook loan company until the loan is paid back in full
• Logbook loans are not regulated by the Financial Conduct Authority special payday loan and short-term loan rules
• Some logbook loan companies are currently being investigated by the Financial Conduct Authority because of concerns over high-interest rates and very high default charges.

7. Credit union

Credit unions are primarily there for people to save money with although most do allow clients to borrow money after they have established a good savings track record over a number of months.

Key facts:

• You can borrow smaller amounts of money (up to £1,000)
• Interest rates compare very favourably with payday loans, bad credit loans, logbook loans, and guarantor loans
• Set up as not-for-profit institutions, there to serve the community
• If you want a loan, you often have to apply in person to the credit union. Most credit unions are only open to visitors a few hours per week. If you need money in a hurry, this may not be the best option.

8. Pawnbroker

Pawnbrokers lend money and they use jewellery, valuables, electronics, and white goods as security on your loan. You agree on a payment schedule with the pawnbroker and, after you have repaid the loan in full, you get your security back.

Key facts:

• Items you offer as security will not allow you to access finance at the actual value of the item
• A pawnbroker does not have to accept anything you offer as security on a loan
• Interest rates can be high
• Your items will become the property of the pawnbroker if you can’t repay the loan. Your item may be displayed in the pawnbroker’s shop at a much higher price than the amount you borrowed against it
• Pawnbrokers are normally open during office hours and on Saturday meaning that, if you need money quickly outside these hours, this may not be the best option for you.

9. Friends and family

Possibly the place where most of us look first when we need money, we can always approach friends and family for help if we find ourselves in a situation of needing money in a hurry.

Key facts:

• Friends and family are normally very happy to help if we get into temporary financial trouble
• Friends and family will normally not charge any interest on money they lend you
• Your relationship with a friend or a family member who has lent you money may suffer if you’re unable to pay them back or if you keep promising to make repayments on certain dates but you don’t.

10. Your boss

If you have a good relationship with your boss, you may wish to consider asking them for either a loan or an advance on your wages. Alternatively, you could ask them for overtime so that, the next time you’re paid, you get more than you’d normally receive.

Key facts:

• Bosses will normally advance you the amount you need and charge you no interest
• Your boss may expect you to work harder than normal if you’re in debt to them
• Make sure that, if you do borrow money from your boss, that you have a signed agreement in place clearly stating how much is going to be deducted from each wage packet until you pay it back.

Bad credit loans – what do you need to do to apply?

If you need money now to cover an emergency and you wish to apply for a payday loan or a bad credit loan, let Oyster Loan help. With a payday loan or a short-term loan from Oyster Loan, you can:

• Borrow from £xxx to £x,xxx
• Choose a one-off repayment or between 2 and 12 repayments
• Know in advance how much you’re going to be paying and on which days
• No early repayment penalties (so you can save money on interest charges)

To apply, we’ll need the following information:

• Where you live (and previous addresses for the past three years)
• How much you earn
• Who your employer is
• How much you spend on a monthly basis and on what

You’ll need to be over 18, a UK citizen, hold a UK bank account with a debit card, and you’ll need to own a mobile phone.

Bad credit loan brokers

Oyster Loan is not a lender – we’re a broker. What we do is match together people with bad credit looking for loans to companies happy to lend to people with bad credit. There’s no fee for our service at any time.

When you apply to us, we’ll match the information you give us with the information our panel of lenders gives us about the type of borrower they’re happy to work with. Within a few seconds, we’ll have got down to a shortlist of likely lenders and we’ll make your application directly to them by sending them your details and your credit report.

A few seconds after that, we’ll get all the offers back from the lenders and present you with the one that we’re certain is the cheapest and offers you the best value for money.

Take the guesswork out of short term loans and payday loans – apply through Oyster Loan instead of making multiple applications direct to lenders. Using Oyster Loan won’t cost you any more than approaching a lender directly.