Bad credit loans: the differences between the lenders

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If you are interested in taking out a loan but have a poor credit rating, it limits the lenders you can choose from. Depending on your credit rating, you might be limited to four major options: payday loans, guarantor loans, instalment loans and doorstep loans. Here we take a look at the lenders that offer these loans to understand how they differ and to see which might be the right option for you.

Payday lenders

Sometimes known as short term loans, payday loans have received a lot of publicity in recent years – both in the amount of advertising time and in the criticism they have had to endure. In principle, they are short term, unsecured loans that allow individuals who need money immediately gain access to money that they need before payday.

Payday loans typically have very high APR – some at over 4,000 per cent – but this gives a slightly distorted picture of the actual cost of the loan. While the cost is still high compared to other forms of lending, payday loans are designed to be paid back very quickly.

The amount borrowed from a payday lender will typically be relatively low and the money is designed to tide over the borrower until their next payday, for example, if they need money urgently to pay an unexpected bill. The attraction for the loans is that they are immediate – as soon as you are accepted the money is put straight into your account. Additionally, as they are relatively low amounts of money, people with a bad credit rating can often be accepted.

Payday lenders may have a bad reputation but when they are used responsibly they can serve a purpose.

Guarantor loan lenders

Guarantor loans work in a different way. If you have bad credit you may be able to get a guarantor loan as this is an unsecured loan, where someone else with a strong credit rating is responsible for paying the debt if the person who takes out the loan fails to make repayments.

This is an area of money lending that has become increasingly popular in recent years with a number of the most popular lenders becoming well-known and well regarded. There are companies such as Guarantorloansuk who have compiled a list of the best lenders to make finding a suitable loan easier.

It is especially common to find parents guaranteeing the loans of their children who may either have struggled with their finances or lack a sufficient good credit history to take out larger loans.

This can be popular not only as a way to get a loan for those with a poor credit rating, but it can also be a way to build a good rating for the person taking out the loan.


On the surface, instalment loans are a very simple proposition. They are paid back over a set amount of time with a number of fixed payments – this makes it very simple to budget for. These have become popular as a form of shorter term loan, in the same vein as payday lenders. They are often offered to people with a poor credit history, but this is usually at a relatively high interest rate.

This is another example where you those with a bad credit rating can use instalment loans to improve their rating. Generally if you can get a loan from a bank or credit union, these will come with a lower interest rate.


So called ‘doorstep loans’ are usually for low sums over short periods – making them similar to payday loans. The key difference is these are loans that are offered to you by salespeople calling at your home. The first thing to note about this kind of lending is that it salespeople offering loans are not allowed to call uninvited. You must arrange for them to visit if you wish to take out these loans. Additionally, they must be authorised by the Financial Conduct Authority (FCA). If they are not, it is illegal for them to offer you loans.

As long as they are authorised by the FCA, they are a legitimate way to borrow money, but it is worth looking into the details as it is likely they will be offering the loans at a higher interest than you could find elsewhere.

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Mike James is a UK-based writer for a few small companies and organisations, as well as numerous print and online magazines. Specialising in technology developments and business matters, Mike is best known for articles based around how best to integrate the two - particularly concerning cyber security, where he has been published in some of the leading authorities online.