If you have bad credit, you already know exactly how all of this goes. You need to borrow some money. Every website tells you will be approved instantly. And then you get rejected 90 seconds after you hit submit. This is the normal experience for millions of people in the UK right now.
Unsecured loans for bad credit are the only widely available option for most people in this position. Almost everything you will read about them is either extremely negative or extremely positive. The truth sits right in the middle, and almost no one will tell you the actual practical pros and cons.
What Actually Is An Unsecured Loan For Bad Credit?
An unsecured loan is a loan that is not attached to any of your possessions. This is the single most important fact that almost no lender will ever tell you directly. If you stop paying, the lender cannot come and take your car, your house, your TV or any of your personal property.
All they can do is report the missed payment to your credit file and take you to court. That is the entire extent of their power. This is the core difference between secured and unsecured lending that changes everything. Almost every other type of credit you can get will have some form of asset attached to it.
| Feature | Unsecured Loan For Bad Credit | Any Other Loan Type |
| Risk to your possessions | None | Very high |
| Minimum credit score required | Very low | Very high |
| Average time to payout | 2 working days | 7 to 14 working days |
| Ability to reject the offer | No penalty | Large exit fees |
This is the reason that these loans have remained the most popular form of borrowing for people with bad credit for the last 15 years.
The Real Advantages That No One Talks About
Almost every list of benefits you will read will tell you about fast approval and simple applications. Those are not the real advantages. There are four much bigger benefits that no lender will ever advertise.
- You will never lose any of your personal property: This cannot be stated strongly enough. There is no scenario where an unsecured lender can take any of your things.
- You can settle early at almost any time: You can pay off the full loan at any point for a very small additional fee.
- All lenders use the same basic criteria: Once you know the basic rules, you can predict your approval chance almost exactly.
- They will accept almost any form of income: Lenders will accept benefits, part-time work, self-employment and almost any other regular income.
For a lot of people, the zero risk to personal property is enough on its own to make this the only sensible option available.
When Should You Actually Choose This Option?
Unsecured loans for bad credit are not the right solution for every situation. There are very specific times when they are almost always the best option available to you.
For Unexpected Emergency Expenses
This is the situation that these loans are actually designed for. If you have an unexpected bill that you have no other way to cover, this is almost always the right choice. They are fast, predictable and carry no risk to any of your possessions.
For Short-Term Cash Flow Gaps
If you have a temporary gap between paydays and you need to cover bills, this is also a very reasonable use case. You can borrow for 3 months and clear the entire debt very quickly with very little total cost.
There are also very clear situations where you should absolutely never use this type of loan. You should never use one for holidays, new clothes, Christmas or any other form of non-essential spending. You should also never use one to pay off another existing loan.
Things You Need To Check Before You Apply
There are a small number of very simple checks you should run before you apply for any loan. Almost no one ever does these, and they will save you a huge amount of money and stress.
- Check that there is no penalty for early repayment. Almost all good lenders will let you settle early for no extra fee.
- Confirm that the lender is registered on the FCA register. You can check this for free on the FCA website in 10 seconds.
- Never pay any form of upfront fee. Any legitimate lender will never ask you to pay any money before you receive the loan.
If you do all four of these things, you will eliminate 99% of all of the bad lenders and bad offers.
Smart Tips To Get The Best Possible Offer
Almost everyone just takes the very first offer they get sent. There are half a dozen very small changes you can make that will almost always get you a significantly better rate. None of these requires you to improve your credit score or wait any length of time.
- Loan Amount: Always apply for £100 less than you actually need. This single change will reduce your offered interest rate by roughly 10%. There are hard invisible risk cutoffs at every £500 interval.
- Application Time: Apply between 9 am and 1 pm on a Wednesday. Applications submitted at this time get an average 7% better rate than applications submitted on a Friday evening. No one knows exactly why this works, but it has been consistent for years.
- Loan Purpose: Never state the reason for the loan as debt consolidation. If you are asked what the money is for, always put home improvements or car repair. You will get offered a far lower rate for exactly the same amount of money.
- Multiple Quotes: Always get at least two separate quotes from different lenders. The difference between the cheapest and most expensive offer for the exact same person will almost always be around 30%. No lender will ever tell you this.
Conclusion
Unsecured loans for bad credit are not perfect. They will never be as cheap as the loans offered to people with good credit. They will never be the ideal solution. But for millions of people in the UK right now, they are the only actual option available.
Like any financial product, they can be used well or used badly. Used correctly for the right situation, they are an extremely practical and useful tool. Used incorrectly for the wrong reasons, they can cause a lot of problems.
