Large Loans For Bad Credit

Updated: May 14, 2024 Author:

Key Takeaways: Large loans for bad credit mean different things to different people. To determine the size of loan you can afford, aim for no higher than 20% of your income, i.e. if you earn £20,000, anything that takes your total debt repayments in a year over £4,000 is a large loan. The longer the loan repayments, the higher a chance there is of your circumstances changing during the loan term. Have a backup plan for repayments, and consider the impact any income decreases or increases to living expenses would have on your household budget.

Many people believe that because they have a low credit score there are no credit loan options available to them. However, that simply isn’t the case. Bad credit loans may not offer such attractive terms and interest rates as loans for those with a stellar credit rating, but rest assured, the poor credit lending market is thriving… A significant number of lenders specialise in offering loans to the subprime market.

What Is A Large Loan?

The first question to answer is what a large loan really is. After all, it can mean different things to different people. For one person, £1,000 loans may be considered a large amount, whereas for another, a loan wouldn’t be considered to be large unless it was for £10,000 loans or more. A good method to determine whether the amount you need to borrow falls under the “large loans” category is to use the 50/30/20 rule. 

What Is The 50/30/20 Rule?

This budget planning rule helps you to identify where you’re spending your money and where any changes can be made to improve your finances. 

The main idea is that you’d be aiming to spend from your monthly income: 

  • 50% on essentials like mortgage or rent, food, transport, and bills.
  • 30% on things you want but don’t need like clothes shopping, subscriptions, trips, and eating out.
  • 20% on paying off your debts and saving.

This proportional approach helps you to work out whether the amount you need to borrow is large based on your specific income and not on a finite figure. Essentially, if you’ll be paying over 20% of your monthly income, whatever amount that may be, on repaying your debts, the loan falls under the ‘large loan’ category. 

Where Can I Find A Large Loan With Bad Credit?

If your credit history is poor, or you have no credit history at all, you’ll probably have to go to a specialist lender to borrow any amount let alone a large amount. The avenues that are available for small sums are not appropriate if you need to borrow thousands, so that rules out pawnbroker loans, credit builder credit cards, and payday lending, for example. 

You may be able to approach a credit union to secure a large loan, as long as you meet their lending criteria such as working in a certain profession or living in a particular region. You may also consider taking out a guarantor loan as long as you have a friend or family member who is prepared to act as your guarantor. 

It’s also possible to secure a personal loan with a specialist bad credit lender that is prepared to consider your circumstances and ability to pay instead of focusing solely on your previous financial history. However, a secured loan is likely to be a lender’s preferred method of approving a large loan to someone with bad credit.

A secured loan requires the use of a valuable asset such as your home or car as security for the lender. As they will be able to take possession of your asset should you default on the loan, lenders are far more willing to lend larger amounts as their risk level is lower. 

Should I Take Out A Large Loan With Bad Credit?

If you’re looking for information about how to get a large loan, it’s likely that you really need the money. If the funds are required for an emergency or to cover essential costs, then the question of whether or not you should take out a large loan with bad credit is fairly redundant. However, it’s always wise to weigh up all your options and to consider whether it’s absolutely essential to take out a loan, particularly if you already find it hard to cover your costs.

Before you make any applications, plan ahead for your future budget. Check how much you can afford to pay each month so you don’t borrow so much money that you end up not being able to repay it. Don’t forget to calculate how much you’ll be paying back overall. It isn’t just the amount that you borrow – there’s interest (usually at a high rate when your credit report indicates a high risk of non-payment) as well as potential fees to consider.

The Stress Test 

Stress testing is carried out by lenders in certain circumstances, most typically when a loan will be secured on a property. This test involves simulating a higher interest rate (usually around 5-7% above the lender’s standard variable rate) to see whether you’ll still be able to afford to make your loan repayments should the interest rate go up in the future. By calculating whether your income will be enough to cover a higher repayment amount, they can make a decision about whether or not to lend you the funds that you need. 

You can even run a stress test yourself to see if you can afford to take out a large loan. It’s important to think about the impact that inflation could have on your loan repayments. We’re all very aware of the cost-of-living crisis that’s been striking our budgets since the winter of 2021, and how much more expensive everything has become over the last few years. 

If you plan to take out a loan over an extended period such as five years or longer, you should bear in mind that a lot can change in that time. You could find that, if interest rates go up, you not only end up having to make larger monthly payments, resulting in you paying significantly more overall, but also find that your household income becomes even more squeezed, causing you considerable stress, worry, and hardship.

Before you apply for any loan of a large sum with long repayment periods, consider whether you could afford to make your payments every month on an ongoing basis, even in the worst-case scenario, since missing payments or defaulting on your loan will only lead to further financial problems that will make it even more difficult to borrow money in the future.