How bad credit changes your options
With adverse credit, mainstream lenders often decline and the lenders that say yes charge more. The best bad-credit loan is the lowest-cost option you genuinely qualify for — and just as important is avoiding the very high-cost lenders that target people with poor credit.
1. Credit union loans
Not-for-profit lenders that take a fuller view than a credit score and cap rates at 42.6% APR (often far lower). Best for smaller sums and lower incomes — frequently the cheapest realistic option for bad credit. Find yours via the credit union finder.
2. Specialist personal loans for bad credit
Some lenders price for adverse credit and will lend where high-street banks won't, at higher rates. Best for borrowers with a default or missed payments who need a few thousand pounds. Use a broker and soft-search checks to avoid declines that further dent your file.
3. Secured (homeowner) loans
If you own a home, securing the loan against it can unlock larger sums at lower rates than unsecured bad-credit loans, because the lender's risk is reduced. Best for homeowners with equity — but your home is at risk, so weigh it carefully.
4. Guarantor loans
A friend or family member guarantees repayment, which can secure approval and a better rate. Best where you have a willing, creditworthy guarantor who understands they're liable if you can't pay.
5. Building your credit first
Sometimes the best "loan" is to wait a few months and improve your credit — a credit-builder card used carefully, registering on the electoral roll, and clearing small debts can move you into a cheaper rate band. See our improving your credit before borrowing guide.
Avoid these
⚠️ Steer clear of payday loans, doorstep lenders and "guaranteed approval" adverts — APRs can run into the hundreds or thousands of percent. No FCA-regulated lender can legally guarantee approval; such ads usually route you to high-cost credit.
How to find the best bad-credit loan
Applying to the wrong lender means a decline and a credit footprint. A whole-of-market broker can match you to a lender likely to accept you and present the lowest-cost route — including credit unions and secured options. Find a loan broker through Nesto — free, no obligation.
Frequently asked questions
Can I get a loan with a default or CCJ?
Yes — specialist and secured lenders consider applicants with defaults and CCJs, though rates are higher and approval depends on how recent and severe they are.
What's the cheapest way to borrow with bad credit?
Often a credit union, or a secured loan if you own a home. Both usually beat specialist unsecured bad-credit loans on cost.
Will a loan application hurt my credit further?
A hard search leaves a mark, and a decline can compound it. Use soft-search eligibility checks and a broker to apply only where you're likely to be accepted.
Are guarantor loans a good idea?
They can secure approval and a better rate, but your guarantor is fully liable if you default — only use one with someone who understands the risk.
Should I avoid payday loans completely?
Almost always, yes. Their cost is extreme. A credit union, secured loan, or free debt advice are far better starting points.