Very bad credit loans are loans for people with adverse credit histories or issues having County Court Judgement (CCJ). These loans have high-interest rates and fees, and it is important to understand these loans.
If you have a bad credit score, regular loans are hard to get. Very bad credit loans can give you money when you really need it. But they cost a lot more in the long run.
The average credit score in the UK is 644 on the Equifax scale. Around 1 in 10 Brits, which is roughly 5.6 million people, are considered bad credit.
Learning about very bad credit loans helps you know your options. You can make good choices about if the loan is worth it and knowing the terms helps you avoid more debt problems.
What Are Very Bad Credit Loans?
Bad credit means you have a poor credit score history. Very bad credit is when your score is extremely low.
For those with very bad credit, here are some loan options:
- Payday Loans – Short-term loans that need to be repaid quickly.
- Title Loans – You use your car’s title as collateral.
- Pawn Shop Loans – You provide an item as collateral.
These loans are for people with very poor credit histories. Lenders have extremely high-interest rates to offset their risk.
- Easy approval, no credit check required
- Must have an income source to qualify
- Very high interest rates apply
| Loan Type | Typical Amount | Repayment Period |
| Payday | $100 – $1,000 | 2-4 weeks |
| Title | 25%-50% Car Value | 30 days |
| Pawn | Based on Item Value | 30-60 days |
One can get all these very bad credit loans with no guarantor and no broker from a direct lender or bank.
Who Qualifies for Very Bad Credit Loans?
Most lenders giving bad credit loans have pretty simple rules. As long as you:
- Have a job or regular income source
- Can provide proof of identity and address
You will likely get approved for one of these loans. Very bad credit usually means your credit score is below 500. There are a few main reasons scores drop this low:
- You missed tons of payments on loans or bills
- You recently went through bankruptcy
- Your accounts were sent to debt collectors
Lenders see these as huge red flags when approving credit. Your score suffers until those issues get resolved over time. A few key points:
- Payment history is the most important factor
- Bankruptcy has a major negative impact
It takes years of responsible money habits to rebuild credit. So lenders charge extremely high-interest rates to cover their risk.
Those aged 65 and over have an excellent average credit rating of 839. The average credit score generally increases with age, so people in younger age groups tend to have lower, or potentially bad, credit scores. This trend highlights the credit challenges faced by many younger individuals and the importance of building a good credit history early on.
Types of Very Bad Credit Loans
Payday Loans
These small loans give you quick cash until your next paycheck. You must repay with interest and fees when you get paid. Payday loans are easy to get but incredibly expensive options.
Personal Instalment Loans
You borrow a lump sum and pay it back gradually. While easier to manage than payday loans, rates are still high. Instalment loans depend a lot on your precise credit situation.
Title Loans
With a title loan, your vehicle’s title is the collateral. You can borrow without a credit check but risk losing your car. Only consider title loans if necessary.
Loan Comparison
| Loan Type | How It Works | Pros | Cons |
| Payday | Short-term, repaid in 2-4 weeks | Fast cash | Extremely high cost |
| Instalment | Repaid over months/years | More affordable | Still high rates |
| Title | Vehicle title as collateral | No credit check | Could lose car |
Bad credit loans assist when funds are urgently needed. You can easily get them from banks, online lenders or direct lenders in the UK. However, the interest and fees make them quite expensive and risky long-term options.
Interest Rates and Fees
Having a poor credit score drastically affects loan interest rates. Lenders see you as having a higher risk of not repaying. So they charge much higher rates to offset that risk.
In addition to high interest rates, bad credit loans typically come with fees. These cover administrative costs and account for the increased risk. Common fees include origination fees, late payment fees, and potential prepayment penalties.
For example, payday loans may have fees equaling an APR over 400%! Instalment loans can have origination fees over 5% of the loan amount. Late fees quickly add up, too.
Fee Comparison
| Loan Type | Typical Rate Range | Common Fees |
| Payday | 300% – 500% APR | Late fees, non-payment fees |
| Instalment | 20% – 36% APR | Origination fee, late fees, prepayment penalty |
| Title | 25% – 300% APR | Lender, loan processing, late fees |
High rates and fees make bad credit loans extremely expensive. That’s why they should only be used for temporary needs until credit improves.
Risks and Considerations
These loans carry major risks if you can’t repay them and missed payments mean expensive penalties and even bigger hits to your credit score. For short-term loans like payday, the fees renew each pay period.
With auto title loans, you could lose your vehicle. Any loan taken against collateral puts that property at risk. Lenders can seize assets if payments aren’t made.
Factors to Consider Before Applying
First, carefully assess if you truly need a bad credit loan. They should only be used for legitimate emergencies when no better option exists. Calculate the total cost over the full repayment period.
Next, make a solid plan for paying it back quickly. These loans are easy to get trapped in costly cycles of reborrowing. Falling behind defeats the purpose of a stopgap loan.
Finally, read all terms and ask questions. Reputable lenders explain fees upfront. Know your specific case risks and backup options. Consider credit counselling for major debt issues.
Conclusion
Very bad credit loans are high-cost options for borrowing money when you have poor credit scores. They come with risks like high-interest rates and fees.
Before getting one of these loans, understand your specific loan terms. Know the total cost over time. Have a plan to repay it quickly and avoid debt cycles.
Bad credit loans can provide needed funds, but use them carefully. Make informed decisions based on your situation. Consider other options first, if possible, to improve your credit over time.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
