£6,000 Loans for Bad Credit

Updated: July 28, 2024 Author:

Key takeaway: Lenders are required to check your credit files as part of the application process. A bad credit history makes it harder to get finance approved, but it doesn’t scupper your chances. It does narrow the pool of lenders willing to consider lending money, and it will push the interest rates higher (typically over 39.9% APR). To bring the cost of borrowing down, try to lessen the risk lenders are taking on by either asking for a secured loan, or a guarantor loan. The best value are Credit Union loans as they are member-owned, community-driven financial institutions with a more inclusive eligibility criteria.

With bad credit, what options are there for £6,000 loans?

Personal unsecured loans 

These are often used to spread the cost large purchases. You can get them from most mainstream lenders, the application process is mostly online, and they don’t require any collateral. However, they take the state of your credit into consideration for approval. If you have a bad credit and manage to secure one, you can expect to get exorbitant interest rates of over 30% APR. This equals an interest of a little over £1000 and monthly repayments of around £500 if the repayment period is a year. If the repayment period is 2 years, expect to pay about £385 per month and a total interest of £2,000 or more. 

Homeowner secured loans 

People with bad credit have a better chance of approval when they apply for homeowner secured loans because they use their homes as collateral. Although your credit history plays a part in the lender’s affordability assessment, your collateral plays a crucial role too. As a result, you may get a fairer interest rate even though approval isn’t guaranteed. 

Before agreeing to securing a loan against your property, be certain that you can comfortably afford the monthly repayments before you get this type of loan. The risk of the loan is placed on your asset so should you fail to make the monthly repayments, the lender may repossess your home. 

Logbook loans 

This is another type of secured loan that uses your vehicle as collateral, provided it is operational and insured. They also have a fair interest rate and most lenders of this type of finance have repayment terms from 1 year to 3 years. The longer you take to repay, the higher the cost of borrowing. You do have to submit your vehicle registration certificate to the lender and they may also ask for your MOT and car insurance documents too. Like all secured loans, missing monthly payments for logbook loans can have dire consequences. Apart from damaging your credit, the lender can also repossess your car and sell it to cover the cost of the loan. 

Guarantor loans

Guarantor loans can also be ideal for those with poor credit or if you’re credit invisible, meaning you have no credit score, perhaps you’re new to the country, or you’ve never registered your details on the Electoral Roll. To apply for them, you’ll need a guarantor – someone who stands in your stead, assumes the loan risk, and repays it should you fail to make repayments on time. Your guarantor could be anyone you choose, as long as they meet the lender’s criteria. 

Credit union loans

Credit unions are co-operatives set up solely to help their members financially. You will usually need to be a member to qualify for their loans and they have different membership criteria. However, they are often lenient towards borrowers with bad credit, often offering fairer interest rates. They may also allow you to spread repayments for up to 10 years.

Important Things to Know Before Taking out £6,000 loans with Bad Credit 

Credit checks. The first and most important thing to know is that lenders are regulated by the Financial Conduct Authority (FCA) , and they are required to run a check against your credit for any type of loan you apply for. So, if you have a CCJ or are bankrupt, you may be instantly rejected by mainstream lenders. A low credit score could also affect your loan and repayment terms. And if you apply to multiple lenders within a short period of time and they all use hard checks, your already poor credit rating would be further impacted. That is why you should never allow yourself to be deceived by any company promising no credit check loans. Some lenders would do a soft check instead of a hard one though, and this would not affect your credit score. It is important to check that a lender adheres strictly to this condition before you apply. This way, you can prevent further damage to your credit score. 

Application criteria. Most loan applications are done online via the lender’s website. However, affordability requirements differ from one lender to another even though there might be similarities. The information required to consider your application will include your home address, employment history, monthly earnings, and budget information to check you can afford the repayments. The figures you use on the application will need verifying by providing copies of bank statements and/or recent payslips.

No guarantees. There are no guarantees that your loan application would be approved even if you pass  a lender’s affordability assessment. Nevertheless, some lenders take a holistic look at your application so you stand a good chance if you put your best foot forward. Budgeting is a big part of it as lenders need to see that you have enough to cover your cost of living once the repayments on the loan begin.

Loan terms and conditions. Before you sign any loan contract, ensure that you read and understand the terms and conditions. This is very important. If you don’t understand any part of the terms, ask the lender for clarification. Particularly, with regard to early settlement figures as there can be penalties for repaying early.

Take note of the interest rate, be aware of the monthly repayments and be sure you can afford them before you put pen to paper. Once you sign the contract and receive the funds, there’s little wriggle room to go back on your word. There may be a cooling-off period, but that’s of little use if the money is spent. Cancelling within the cooling-off period will require funds to be repaid in full.

Other ways to get finance for £6,000 

Just asking someone to be a guarantor on a £6,000 loan is a big ask. For this amount, it’s usually parents or really close friends who would be willing to help. The loan rates for people with bad credit can have too high an interest rate for the repayments to be affordable. An alternative is to consider how much in total you have being paid towards lowering your total debt repayments and consider if it would be worthwhile rolling them into one sum using a debt consolidation loan. When you have bad credit, the rates being as high as they are, mean you’re paying more in interest over the longer term, which can be lowered by combining multiple smaller short-term loans into a single larger loan to repay everything. The only thing you do need to be careful of is early repayment charges. You can ask each creditor to provide you with a written quotation for an early settlement figure. Once issued, it’s usually valid for 30 days with some firms freezing interest from the day the settlement figure is requested. If unpaid within the specified time frame, the interest is added as it would normally be in any other month.