Emergency Loans for Bad Credit

Updated: April 01, 2024 Author:

Quick Answer: Emergency loans for bad credit can provide funding from £50 to £1,500, repayable over 1 to 12 months, irrespective of your credit score. The FCA has capped the interest at 0.8% daily, but there can be additional charges if you miss a payment or use a loan broker service.

    What is an Emergency Loan

    Emergency loans are advertised under several terms. Emergency loans, payday loans, crisis loans, and short-term loans. The purpose of this type of loan is to get you by in an emergency such as having to pay an engineer call out to fix a broken boiler or get your car repaired so you can get to work. They’re designed to be repaid as soon as possible, preferably off your next salary payment, although costs can be split over several monthly payments, usually 3, 6, 9, or 12 months.

    The Cost of Emergency Loans with Bad Credit

    The FCA has capped the amount of interest emergency loan providers can charge to a maximum of 0.8% daily. For every £100 borrowed, you’ll pay up to £24 in interest over a 30-day period. If you miss a payment, the maximum late payment fee is £15 per failed payment. The maximum repayment term is 12 months for emergency loans because these are not suitable for long-term finance. If you need longer to repay, consider personal loans or unsecured loans for bad credit which are repayable (usually) over 1 to 3 years, sometimes longer, depending on the lender. Those are the costs for emergency loans with a direct lender. If you use a payday loan broker, it can cost more.

    Brokers vs Direct Lenders

    The financial sector can be difficult to understand. Brokers help you navigate it, explaining the terminology, assessing your financial circumstances, listening to what you need, and then helping you apply to a suitable lender that matches your criteria. In the case of a poor credit score, that will be done by applying to a firm specialising in financial products for applicants with bad credit. The service isn’t free though.

    Emergency loans are regulated by the FCA and the category for this type of loan is classed as high-cost short-term credit (HCSTC). There are strict rules, with one of the main ones being that brokers must make it clear that they are a broker, not a lender. Brokers apply to lenders on your behalf. You can save on fees, and perhaps get a better deal by approaching direct lenders. We have a list of bad credit loan direct lenders here, some of which provide emergency loans. There are pros and cons to using a broker so if you’re unsure about whether to apply directly or use a broker, you can learn more about Brokers vs Lenders here.

    Alternatives to Emergency Loans

    Guarantor loans

    Guarantor loans are handy if you have someone with a good credit score willing to help you out. You take out the loan in your name with a friend or relative co-signing. If you default on the loan repayments, the co-signer becomes liable for repayments. It’s an assurance to lenders that they’ll be repaid. If not by you, by the co-signer.

    A Consumer Finance Credit Line

    Many retailers offer flexible repayment options. If not with a lender directly, by a BNPL provider. Whether or not you should use Buy Now, Pay Later with a bad credit score is a matter for you to decide. Depending on the cost of what you need, you may be able to spread it over a few months, which is similar to the repayment options on emergency loans and could be a cheaper alternative.

    Salary Advance Scheme

    This only applies if your employer has signed up to offer this service. Many did when the Cost-of-Living Crisis hit. In 2022, 18% of the UK’s workforce had access to a salary advance scheme. How much you can get depends on the scheme your employer has in place. For example, the Compass Group has an arrangement for employees to access up to 50% of their salary before payday. Tesco provides up to 25% salary advance. One of the largest providers is Salary Finance and they have an eligibility checker on their website – If your employer offers it, that’s where you’ll find it. Another service some chain brands (and some NHS Trusts) are using is Wagestream which offers Flexible Pay – whatever wages you’re due paid, you can get it before the payroll run.

    Credit Cards for Bad Credit

    You can get credit cards with bad credit. Lenders will typically provide a lower credit limit. 118 118 Money is one provider that offers a credit-building credit card with a credit limit of up to £1,200. When you first get it, it’s likely to be a lower amount. If you’re considering an emergency loan for £300 or under, there’s a good chance that a credit card for bad credit could give you a limit of around that amount. Do keep in mind that using all your available credit will likely hurt your credit score more, so aim to get the balance below 50% of the available credit limit as soon as possible. If credit cards are new to you, you can learn more about credit limits and how they affect your credit score here.

    Consider All of Your Options

    When you’re strapped for cash, emergency loans are an option to get you by. For a high price. Before applying for emergency loans, check what grants are available.

    Where to Find Crisis Grants

    Every council has a website on a sub-section of the gov.uk website. To see what was available, we chose a random district – Ipswich. (https://www.ipswich.gov.uk/). They have a Community Resilience Fund, which is used to fund support groups in the local community. The “external grants” page lists the organisations the funds are allocated to. One of those is the Community Action Suffolk group. They fund charities, not individuals. Most local charities are networked together, helping them to signpost people to the most relevant charity that could assist with whatever you need.

    Search on your local council’s website to see what charities they fund and reach out to those charities to ask what funding you may be able to access. The Citizens Advice is another service that can signpost you to relevant charities that could be of assistance.

    For an online grant search, the Turn2Us website has a grant search function. Answer a few questions pertaining to your age, the area you live in, and your occupation, and they’ll show relevant results. As an example, a 41-year-old living in Chester who worked in the Construction Industry may qualify for a grant from the B&CE Charitable Trust for financial assistance toward rent in advance or deposit, rent or mortgage arrears, or essential household bills.

    Government Schemes, Grants, and Hardship Loans

    Councils in England provide Crisis Grants through Local Welfare Assistance Schemes. These are run by the local council. Search online for [your area] local welfare assistance scheme. As an example, searching for the Manchester Local Welfare Assistance Scheme, the results show that you may be able to get a cash grant of £30 to £60 if you’re in a financial crisis.

    For those in work, unable to qualify for hardship payments, most councils have resource pages like this one on Manchester City Council’s website providing resources for assistance paying energy bills, paying your rent or mortgage, facing redundancy, etc.  Scotland provides Crisis Grants through the Scottish Welfare Fund, and Wales provides Crisis Grants through the Discretionary Assistance Fund. Grants are different from loans because you do not pay them back. If you work and get top-up income through Universal Credit, you may be able to get a Budgeting Advance to help with the cost of unexpected bills like a broken electrical appliance. Those do need to be repaid.

    For help to repay arrears on energy bills, the British Gas Energy Trust can provide financial help and it’s not restricted to British Gas customers. It’s open to everyone in England, Wales, and Scotland. The only requirement is that you get debt advice first, such as working with a debt advisor at the Citizens Advice to create a budgeting plan.

    When you’re facing financial hardship, it’s important to take a breather before applying for emergency loans with bad credit that can lead you into a debt spiral. Consider all of your options, and seek advice if you feel your budget is becoming unmanageable.