Credit Card Loans For Bad Credit

Updated: April 02, 2024 Author:

Key takeaways: Credit card loans (loans against your existing credit card) can be easier to obtain and because you don’t go through a credit check they can be the ideal solution in an emergency. Those with bad credit can get a credit card loan but if you’re worried about damaging your credit score further, you should look for an alternative. 

What Is A Credit Card Loan?

A credit card loan allows you to apply for a loan without all the extensive checks. As you are borrowing against your credit card limit you don’t have to go through a credit check as you will have already had one when you applied for the credit card meaning you could get the money quicker than if you were to take out a personal loan. A credit card loan is usually paid back monthly with interest over a set repayment term. There is a chance you will get declined for a credit card loan if you don’t meet certain eligibility criteria, however, if you need cash in an emergency it can be a quick solution and an alternative to a payday loan

    How Does A Credit Card Loan Work?

    You can usually apply for a credit card loan through your bank’s website or app. As there’s no paperwork to fill in it is seen as a quick and easy loan option but it’s not a decision that should be taken lightly. 

    The amount you can borrow will depend on many things such as your available credit, how much you spend monthly and you’re financial history. Once you settle on a loan amount and repayment terms the money is sent to your account either the same day or within a few days.

    If you already have debt then taking out a credit card loan isn’t a good idea as it can cause your debt to spiral. While a credit card loan that is paid back with no problems won’t benefit your credit score in any way unlike some other forms of credit, defaulting on the repayment and adding to your debt will negatively impact your credit score. 

    The Cost Of A Credit Card Loan

    While credit card loans typically have lower interest fees than same-day loans, they’re still quite high and this type of loan should only be used for emergencies. Given the high interest, it’s not advisable to use a credit card loan for purchases such as clothes and holidays but rather for those unexpected costs like a broken boiler when you don’t have any savings.

    One thing to note is how a credit card loan can affect your credit score as it’s not just about the financial cost. When you take out a credit card you have a credit card utilisation rate – which is basically how much of your credit limit you’ve used. A low credit utilisation rate shows lenders that you’re only using a small amount of the credit that is available to you whereas a high rate means you’re maxing out your credit card. A low rate shows that you are a reliable borrower and can keep the interest rate lower on future products.

    Taking out a credit card loan increases your credit utilisation rate and can lower your credit score. Although the perfect credit utilisation rate isn’t revealed by lenders, a good rule of thumb is to keep it below 30%. A credit card loan can push you above this which in turn will lower your credit score. It’s believed that anything over 50% is considered high credit utilisation and will likely be marked on your credit file.

    Taking out a credit card loan can easily push you into the high credit utilisation threshold even if you’ve never been in it before so it’s a big factor in deciding whether a credit card loan is right for you or not. 

    Can I Get A Credit Card Loan With Bad Credit?

    As there are no credit checks involved with a credit card loan, you’re just borrowing against your available credit then it is possible to get a credit card loan with bad credit. However, if you’ve been approved for a credit card with bad credit then the chances are you will have quite a low credit amount so the loan available to you won’t be very big. 

    As there’s no application involved, taking out a credit card loan is one of the easiest ways to obtain money in an emergency. However, this ease is what can cause problems with debt if you already owe money on another loan. Taking out a credit card loan can be a tempting way to try to repay some of your existing debt, however, this will only cause your debt to spiral which will hurt your finances, your credit score, and your overall well-being. 

    If you already have bad credit then make sure you can repay the credit card loan on time and make sure the loan isn’t affecting your credit utilisation rate to not further damage your credit score. 

    Alternatives To Credit Card Loans

    A credit card loan should only ever be used in emergencies. If you’ve found yourself with an unexpected bill whether that’s from something like car repairs or a broken boiler then a credit card loan can be a good way to get money fast.

    However, if you know that taking a credit card loan will cause problems when it comes to repayment or your credit score then try looking for an alternative to help with your emergency costs.

    Asking family and friends for a loan is always a good first port of call as there are no fees involved and they can usually get the money to you fast. Just make sure you can pay all the money back promptly.

    A personal loan may offer a lower interest rate than a credit card loan so weigh up different options when it comes to interest and fees and go with the one that has the lowest amount. The interest rate on a credit card loan can be quite high, especially if you have bad credit so finding a lender that specialises in bad credit for a personal loan could save you some money.