Should I Use Direct Lender Loans for Very Bad Credit?

If you have bad credit, you may be finding it difficult to get a loan from your bank. If you’ve exhausted all your options and have no other choice, you may find yourself searching for bad credit loans online.

Of course, you should consider cheaper forms of credit first, such as credit cards, unsecured personal loans or even borrowing from friends and family, as loans for bad credit come with a very high-interest rate and are designed for emergency use only.

Man looking at his computer screen which shows that he has bad credit

In this article, we’ll cover as much as we can about loans for bad credit and whether it’s best to borrow from a direct lender.

We’ll cover the following plus more:

Is it possible to get direct lender loans for very bad credit?

Yes, it is absolutely possible to get a loan even if you have a very poor credit score. Because the process is so fast and easy, we recommend that you be extra careful before applying for bad credit loans online. Make sure you’ve exhausted all your other options and that you can afford the monthly repayments.

How do I apply for bad credit loans online?

You can typically apply for loans for bad credit online directly from a lender using their website. The loan application process usually takes between 5 to 10 minutes. To apply for a loan with very bad credit, you’ll need to:

  1. Fill out the loan application form
  2. Verify your mobile
  3. Verify your email
  4. You may be asked to send in ID, payslips or bank statements
  5. Sign the loan contract
  6. Supply UK bank account details and verify a debit card
  7. You’ll generally receive funds same day
  8. Weekly or monthly repayments are debited using CPA (Continuous payment authority.

Remember, repaying payday loans late can cause you serious money problems as interest accrues at a very fast and high rate.

How do poor credit loans work?

Bad credit loans work by charging higher interest than average. This is because they are lending to people at a greater risk of not paying their loans back. If you have poor credit history, it usually means that you’ve had difficulty repaying credit in the past, which can mean that you may find it challenging to repay credit in the future as well.

Most bad credit lenders will not lend to you if you are having difficulties repaying loans now, but they will lend to you if your poor credit is in the past and your current credit accounts are all on track.  This means that even people with a bad credit scores can get approved as long as their active accounts are all on track.

What is a direct lender?

Whereas a direct lender will supply t loans direct to you, a broker will sell your information to the highest bidding lender. We recommend that you only apply with a direct lender .

The benefits of using a direct lender vs a broker are:

  • Privacy. It’s easier to control who has access to your information when you apply on a direct lender site.
  • Speed. Since the company you’re applying with is lending you the money directly, the process is much quicker.
  • Easier. Since you are only dealing with one company, it’s less confusing and you always know who to contact if things go wrong.

It’s hard to distinguish between a direct lender website and a broker website, but the rule is if the site clearly says ‘Direct Lender’, they probably are one. You can also check the small print in the footer. If you see words such as ‘broker’ or ‘Introducer’, then it’s probably a broker site. 

Finding the best direct lenders online

So now that you know to apply only with direct lenders for your bad credit loan. Which direct lender should you choose?

There are a few features to consider when comparing direct lenders:

  1. FCA authorisation.

    Always make sure that the lender you are applying with is authorised by the Financial Conduct Authority. You can check this by searching their name on the FCA register and ensuring that the website listed is the same website you are on.

  2. No hidden fees.

    Most direct lenders don’t charge an admin fee or a same day funding fee, so if you see any mention of additional costs, we recommend you do not apply on the website.

  3. Early repayment.

    We think it’s essential for a lender to allow you to repay your loan early without penalty. Repaying a payday loan early can save you money. Avoid lenders who have a minimum repayment period or early payment penalties.

  4. Service and trust.

    As with any online product, always check the reviews. You’ll see how customers react to the company (and how the company responds to their claims).

  5. Online Login.

    Many lenders allow you to control your loan online, and these lenders are usually a step up from the rest.

What can I use bad credit loans for?

We’ve already mentioned that payday loans for bad credit are a costly form of credit and should only be used in emergencies. However, most lenders offer loans online with a very fast turnaround which make them very useful if you need a very quick loan urgently. Examples might be:

  • If you’ve reached your overdraft limit and your overdraft would be more expensive than borrowing a from a payday loan direct lender.
  • If your car breaks down and you need money immediately to fix it, the bank takes 1-2 days to process your request. 
  • If you need to cover an emergency medical bill and do not have time to apply with your bank and wait for their reply.

We recommend that you repay your loan once the crisis has been averted as soon as possible (which is why we also recommended that you use a direct lender who does not penalise you for repaying your loan early).

Of course, it’s always best to avoid loans designed for people with really bad credit, as they are expensive. Try to see if you can find another solution to your cash flow issue before you apply with a direct lender online.

How do pay back an online bad credit loan?

Bad credit loans are usually repaid through a debit card supplied at the application stage, using CPA (Continuous Payment Authority). If you need to change how you need to repay your loan, you should contact your lender. Most lenders will allow you to pay by BACS transfer or direct debit as well. Try to repay your loan early to save money on payday loan interest. 

If you cannot repay your loan, contact your lender ASAP, as they’ll be able to freeze the interest accruing and put you on an affordable repayment plan. You may need to provide proof of the reason you cannot repay your loan, e.g., if you’ve been laid off.

Why do people have a low credit rating?

People can have a low credit scores for many different reasons, some of which are hard to detect. If you’re struggling to get approved for credit, you may have a bad credit score. Make sure

  1. That you are on the Electoral register (voter’s roll)
  2. You are applying with the address that you are registered at
  3. That all your credit repayments are on track
  4. You do not have any CCJs outstanding
  5. Your credit file is not linked to someone who has very poor credit
  6. You’re not making only minimum repayments on your credit cards
  7. That you don’t have any gambling accounts

This should increase your credit rating and help lenders see that they can trust you to repay make the loan repayments on time.

Why is it difficult to get a loan with poor credit history?

If you have a bad credit history, you did not pay previous credit accounts on time. This is a red flag for lenders as it either suggests that you can’t be trusted to repay back the loan or that you are prone to getting into financial difficulties.

If you’re not sure why you keep getting declined, there could very well be a misreporting on your credit report which is making lenders believe that you have bad credit history. You should check your credit file and try to correct the mistakes before applying again.

Did you know? You have a legal right to access your credit report for free from any credit reference agency.

How do I check my credit score?

Three main credit reference agencies operate in the UK. They are TransUnion (previously CallCredit), Equifax and Experian. The problem is that each lender will use a different CRA (credit reference agency), so you should check your credit file with all 3 of them.

It used to be that you needed to pay to see your credit score, but new rules were introduced that the CRA must give you a free statutory credit report.

Links to claim your free credit report:

Keep in mind that the statutory report only shows past credit history. If you want to stay on top of your credit file, you may need to pay a monthly fee . We recommend checking your credit history and fixing any mistakes before applying for direct lender loans for poor credit.

The difference between a no credit check loan and a poor credit loan

A no credit check loan is where the lender does not carry out a full credit check, whereas a bad credit loan is where the lender does carry check on your credit rating, but will still provide you a loan with bad credit.

If you’re borrowing a loan for bad credit from a direct lender online, you should avoid any website offering ‘no credit check loans’ as this can indicate that they are loan sharks and not FCA authorised lenders. 

Be aware that some responsible lenders claim ‘no credit check’ to get an initial quote, and that’s fine. But if they decide to lend to you after carrying out the soft credit search, they should then carry out a full check before funding the loan! 

Will a bad credit loan affect my credit score?

Yes. Borrowing any form of credit impacts your credit score. Does it impact it negatively or positively? It depends. If you’re looking to take out a mortgage in the next two years, we strongly advise against borrowing a loan for bad credit. But if you’re not looking to borrow a substantial bank loan, repaying short term loans on time can improve your credit score, as long as you’re not borrowing them too often or consecutively. 

Did you know? Lenders are not allowed to lend to you if you fail affordability, but can lend to you if you have poor credit history.

Why are affordability checks necessary?

We’ve talked a lot about credit checks, poor credit scores and how they can affect your eligibility for an online loan. But lenders don’t look at just your credit score. Another critical check that online lenders carry out is an affordability check.

These checks are far more essential than credit checks. Why? Because if you have bad credit, lenders can still choose to lend to you at their discretion. But if you cannot afford the loan, lenders are not allowed to lend to you and could get into serious trouble for doing so.

For this reason, it usually’s more important to pass a lender’s affordability check than to have a good credit score.

Tips to pass lender affordability

  • Declare all streams of income, not just your income
  • Only declare your share of expenses, not the total cost of household expenses
  • Be truthful, as lenders have ways to check how much you are spending
  • If asked, supply proof of your income readily

Some forward-thinking lenders have integrated Open Banking in order to ensure that they’re only providing loans that are affordable. Open Banking is perfectly safe and gives the lender read-only access to your bank account for a short period. If a lender asks you for Open Banking access, it’s a good sign that they’re making every effort to only lend affordable loans.

Should I apply for a bad credit loan?

If you have very poor credit and need emergency cash to cover a temporary cash problem, you might consider loans for bad credit from a payday loan direct lender – considering all the factors we’ve mentioned in this article. If you don’t have bad credit, you might consider an unsecured personal loan instead. You can read more about those here.

We hope you found our guide to bad credit loans useful. We hope that you better understand how to deal with having bad credit and how you can improve your credit score. We at FamilyMoney always try to bring you the best advice, but you should always compare all your options before applying for any type of bad credit loan. Especially since a poor credit loan can be very expensive, especially if not paid on time.

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