£500 Loans For Bad Credit

Updated: June 16, 2024 Author:

Key takeaways Having bad credit doesn’t exclude you from getting a £500 loan. Secured loans are the cheapest. Unsecured loans are more expensive. Pawnbrokers tend to lend small sums repayable over 6 months with an average 150% APR. Payday loans have rates as high as 1,250% APR repayable within 1 month. To avoid damaging your credit files any further, consider using a direct lender offering funds based on a soft credit search only. 

    What is the Easiest Type of Loan to Get with Bad Credit?

    A secured loan is the easiest type of loan to get when you have bad credit. This is because the lender is less at risk so can offer quick loans with better rates. A secured loan uses your property, your car, or other valuable assets as collateral. Borrowing against a big asset is common for people who need a large loan or a longer time to repay.

    There are also pawnbroker loans – another form of secured loan –  that is better for smaller loans such as a £500 loan or less. With a pawnbroker loan, you usually offer jewellery or watches and sometimes technology as collateral. Simply repay the loan in the agreed timeframe to receive your items back. If you fail to pay, the pawnbroker can sell your items to recuperate their losses. 

    Even without high value assets to use as collataral, there are still some easy loan options available. Payday loans are one of the easiest types of unsecured loans to be approved for but they do rely on you having a regular income. A credit card loan cuts out all the extensive checks as you are borrowing against an existing credit card limit. You’ll find that these usually have lower fees but can cause your credit utilisation rate to go higher, which is essentially how much of your credit limit you’ve used. Aim to keep credit card debt below 30% of your avaialble credit limit so it doesn’t impact your credit score further. 

    Is it Possible to Get a £500 Loan with a Terrible Credit Score?

    Having a low credit score can cause you to feel financially isolated. Rest assured, you are part of a very large crowd of people all feeling the same way. There is help out there. It’s just hard to find the lenders directly for all the intermediaries doing the advertising for them. Around 1 in 10 people in the UK are credit invisible meaning they have no credit history, and around 1 in 5 people have poor credit. With so many people in the bad credit camp, you aren’t a group that goes ignored – Multiple lenders specialise in providing funds to the financially excluded.

    The most affordable loans are prvovided by direct lenders that loan directly to borrowers without a middleman like a broker charging additional costs. Direct lenders usually deal with short-term loans but the repayment term differs between lenders and will be based on the amount you borrow. A £500 loan is likely have a maximum repayment term of 12 months with some lenders offering a much shorter repayment period.

    Having a terrible credit score or even being credit invisible isn’t as much of a hindrance as you may have thought. Particularly for sums of £500 or lower as the repayments can be much more manageable when spread over longer terms. In order of expense, payday loans are the priciest, next is installment loans repayable over 3 to 6 months, and there’s also line of credit accounts, that work like an overdraft seperate from your bank that you can take as long as you need to repay. Interest is payable on the amount of credit you use.

    Can I Get a Loan with No Credit Check? 

    It’s understandable to worry about loan rejections because of a bad credit score. You can’t exactly get around a poor credit score by looking for no credit check loans. The closest you’ll get is lenders offering loans based on a soft search only. Lenders who deal with customers with impaired credit files are used to seeing CCJs, accounts in default and multiple missed or late repayments. As such, you’ll find them to be less judgemental than some of the traditional lenders. They also know that persistent loan refusals do more harm to your credit score and aim to help by using only a soft search. In some cases, secured loans can be arranged with only ID verification rather than proof of income as the security is sufficient proof to assure the lender that they won’t be out of pocket. 

    Will Direct Lenders Lend to People with Bad Credit?

    Online and high street direct lenders are more likely to work with people with bad credit than a bank. The harsh truth is that if you have bad credit then even a loan of £500 or less could be rejected by a bank. Just getting an overdraft increase is difficult. You’d think with your bank, since they know the most about your finances, can see your income and where it goes, they’d be the best place to secure the funds you need. Even if your bank statements show you can afford the repayments, they still need to use credit checks and mainstream lenders focus primarily on those with good credit scores. They view a low score as high risk, and banks don’t like to take risks. They want to know that they’re lending to people with a good track record when it comes to finances. 

    Staying Safe with Lenders

    Whilst banks have a known name and reputation making you feel more confident in your borrowing from them, it can be tricky to know if some unknown name lender has those same securities as the banks you may be more used to dealing with. Lenders are regulated by the Financial Conduct Authority. They maintain a register of all finance companies registered to carry out regulated activities. When considering applying to any company, you can check the legitimacy of them by searching the FCA register. 

    Can I get Low-Interest Fees on a Loan with a Bad Credit Ccore?

    You may have heard people mention that getting a loan with bad credit means you’ll be hit with high-interest fees. Whilst this is true to some extent, the type of loan you take out, your credit score and the repayment terms all play a part in the interest rate a lender quotes for a loan. The last thing you want is to take out a £500 loan and find yourself in even more debt owing to the high-interest fees. There’s no point in sugarcoating it, if you have bad credit you are going to pay a higher interest rate than someone with good credit. That doesn’t mean that your only option is to settle for predatory rates. Certain types of finance are capped at 0.8% daily interest, with an added assurance that you don’t pay more than 100% in fees over the term of the loan. It’s usual for a payday loan to have an APR of around 1,250% whereas a pawnbroker loan will usually have an APR of around 150%. LKeep in mind the APR is the annual percentage rate – the repayment terms are under 1 year.

    If you want a lower interest rate and are in a position to offer something as collateral, a secured loan may be a better option than an unsecured loan. Failing that, consider guarantor loans. Those provide the lender with the assurance of someone else vouching to pay the loan back if the applicant fails to repay it.