When your credit history is poor, the temptation is to take the first offer that says yes. That is understandable, particularly under pressure, but it is also when people are most likely to end up with expensive or unsuitable credit.
V5 Solutions suggests a more methodical route. The six steps below will not make bad credit disappear, but they can help you find the most suitable option available and avoid the worst ones.
Step 1: Be Clear About the Need
Write down exactly how much you need, what it is for and when you need it. Then ask two honest questions:
- Is there another way to cover this, such as savings, a payment plan with the company you owe or help from family?
- Would repaying a loan leave enough for rent, bills and food each month?
If the money is to pay other debts or everyday living costs, talk to a free adviser at MoneyHelper or StepChange before going further. Borrowing in that situation often deepens the problem.
Step 2: Check Your Credit Reports
Get your free statutory reports from Experian, Equifax and TransUnion. You may find errors you can correct, old debts that have dropped off or accounts you have forgotten about. Understanding whether your file is damaged or just thin also tells you which lenders are worth approaching, as our guide to no credit history versus bad credit explains.
Step 3: Look at Lower-Cost Options First
- A credit union. These member-owned, not-for-profit organisations often lend to people with imperfect credit, and in Great Britain their interest rates are subject to a legal maximum. You normally need a common bond, such as living or working in a particular area.
- A Budgeting Advance. If you have claimed Universal Credit, Employment and Support Allowance or Pension Credit for at least six months, you may qualify for an interest-free advance towards one-off costs. Details are on GOV.UK.
- Local welfare assistance. Many councils offer emergency help with essentials. Ask your local authority what is available.
Step 4: Test the Market With Soft Searches
Hard searches are recorded on your file each time you formally apply, and lots of them can count against you. Eligibility checkers and quote tools that use a soft search are invisible to other lenders. Use them to see where you have a realistic chance before submitting any full application.
Keep a note of every quote you receive, including the APR, the repayment amount and the total amount repayable, so you can compare like with like. A smaller monthly payment spread over a longer term is not necessarily the better deal.
Step 5: Understand Secured Options and Their Risks
Lenders offering secured credit can sometimes accept applicants that others decline, because the loan is backed by an asset. That asset is then at risk if repayments stop.
A logbook loan from V5 Solutions is secured on your car, van or motorbike, which you keep driving. We consider applicants with bad credit and base our decision on the vehicle's value and on affordability, which an underwriter checks using your bank statements and a phone call. A soft search shows your personalised quote without affecting your credit score. This is an expensive way to borrow, so weigh it carefully against everything else. Our article on red flags and green flags when choosing a lender sets out what to check, and our guide to consolidating debts explains why borrowing to repay other borrowing needs particular care.
Step 6: Rule Out Dangerous Lenders
- Walk away from anyone asking for money before releasing a loan.
- Treat any promise of approval regardless of your circumstances as a warning, not a reassurance.
- Confirm the firm appears on the FCA Register. Unauthorised lenders, often called loan sharks, operate outside the rules and can use intimidation to collect.
- Avoid taking a new short-term loan to repay an old one.
Taking these steps in order may feel slower, but it gives you the best chance of borrowing in a way you can manage.
This article is general information, not financial advice. For free, impartial help with your own situation, visit MoneyHelper.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
