A Guide to Little Loans in the UK: How to Borrow Up to £2500 Fast (Even with Bad Credit)
So, you’ve encountered an emergency financial issue or you’ve got an amazing business idea that requires funding, but your credit score has you feeling like there’s no way you could borrow anything from anyone? While it’s true that most lenders will use your credit score as the primary determining factor for larger loans, it’s possible to obtain approval for little loans even if you have terrible credit.
How much would you like to borrow?
Representative Example: Rates from 49.9% APR to max 1333% APR. Minimum Loan Length is 1 month. Maximum Loan Length is 36 months. Representative Example: £250 borrowed for 30 days. Total amount repayable is £310.00. Interest charged is £60.00, annual interest rate of 292% (fixed). Representative 669.35% APR (variable).
If your credit score is above 620, you’ll have no problem being approved for smaller loan amounts by banks and conventional lenders. If you’re a low credit borrower with a score below the 600s your options are limited, but there may still be a few approaches worth considering. In this guide, we’ll cover everything you need to know to quickly borrow up to £5,000 in as an individual with bad credit in the UK:
Payday Loans are Your Best Bet Unless You Have Good Credit
If you can prove that you have a reliable source of income, you can probably get a payday lender to approve you for a loan amount ranging from £100 to £2,500 or more. The best part about payday loans is that, once your income and identity have been verified (a process that can be completed in just a few minutes in some cases), you should be able to get the money in your account or put in your hands as cash on the same day.
Payday loans do come with higher interest rates and shorter loan periods ranging from 3 to 18 months, but in exchange, you’ll receive great approval odds and fast access to funding. As mentioned earlier, individuals with credit scores higher than 620 may have better options on the table, but in terms of speed of funding and ease of approval, there’s really no competing with payday loans when you have bad credit. Another great aspect of payday loans is that they do not cause hard credit checks to appear on your credit report, which could negatively affect your score.
To recap, here’s a summary of the reasons why payday loans are the best option for borrowers with poor credit who are searching for little loans:
- Same-day Approval & Funding – With most alternative lenders competing for borrowers, they’re usually in a rush to send your money as soon as you’re approved.
- Loan Amounts of Up to £2,500 – Despite carrying some of the highest interest rates, payday loans are still the most generous low credit borrowing option available in the UK due to the amounts you can be approved for, even with terrible credit. Essentially, you’re agreeing to pay back much more than what you’re borrowing in order to compensate the lender for the risk they’re taking by approving borrowers that no other lender would even consider.
- Repayment Periods of Up to 18 Months – Many payday lenders will give you up to a year and a half to repay the loan. That’s not as long as other three or five-years loans, but it gives you plenty of time to stay on track.
- Almost Guaranteed Approval for Employed Individuals – Another reason why payday lenders have to charge excessive annual percentage rates (APRs) is that it allows them to guarantee high approval rates as well. In other words, they expect a lot of their borrowers to default, so to make up for that fact and stay in business, they have to charge much higher APRs than any other kind of financing provider. Ultimately, if you can prove that you’re steadily employed and you make enough to cover your scheduled repayments, you’ll be approved with very little effort or time spent.
If you had good or great credit, you probably wouldn’t need a guide to tell you where to borrow money because any bank or traditional lender would gladly issue you a loan on the spot. For borrowers whose scores have just passed into the 600-club, other options like peer-to-peer lending might be worthy of consideration, but these still aren’t as reliably obtainable as a fast loan today.
Some Payday Lenders are Faster Than Others
While some payday lenders will be able to approve you for little loans and give you the money instantly, others may take 1-2 days to even process your application. After your approval, it could take 1-3 days for a BACS bank transfer to post in your bank account’s available balance.
To avoid such waiting periods, try to look for a payday lender that promises same-day funding or “approval within minutes.” This is a common guarantee offered by many alternative lenders because the low credit borrowing market has become intensely competitive in the past decade.
Your Credit Score Doesn’t Matter, But You Will Need Proof of Income
Believe it or not, if you’re only trying to borrow an amount that’s less than £2,500, you can usually do that without the lender caring about your credit history. However, you’ll definitely need to show proof of consistent income that will allow you to make repayments in a timely manner.
Most payday lenders will accept a wage slip from your employer as proof of income. Alternatively, you could also use your bank statements. Different lenders will have varying income proof requirements. Some may only want you to show the past 30 days’ worth of income, while others will require several months of bank statements. If you’re self-employed, some payday lenders will want to see an extended income history spanning back at least 3-6 months consecutively.
Your Loan Amount Will Vary Based on Your Income
Although being approved for a payday loan is basically a guarantee if you can prove that you have a decent job and an upcoming payday, the amount you’ll be approved for will vary greatly depending on how much you earn within each pay period. Most people will find that a typical salary or wage is sufficient to obtain approval for loans up to £1,000 or £1,500.
To obtain approval for loans between £1,500 and £2,500 or more, you’ll usually need to show proof of an above-average income. Still, there are some payday lenders who will offer extended repayment periods of up to 18 months in order to break your monthly repayments down into more manageable amounts.
Most alternative lenders offer a process known as pre-approval, during which they examine your basic information and determine how much to approve you for before you even apply. This gives you the ability to compare multiple lenders and choose the one who’s willing to let you borrow the most.
A Co-Applicant Can Increase Your Loan Amount and Odds of Approval
If you’re let down by the amount that you’ve been approved for, the lender may offer to increase your loan amount if you can get another person to act as the co-applicant. Even payday lenders who don’t factor in credit will allow for larger loan amounts when there are multiple applicants because that means they can base their re-calculations on both of your incomes combined.
Finding someone who’s willing to co-sign for you can be absurdly difficult, and most people wouldn’t even want to ask anyone other than their parents. Still, if you need to borrow more than the amount you’ve been pre-approved for, finding a co-applicant is certainly an applicable solution to try.
Pawnbrokers Offer a Last Resort Alternative
If you’re unable to show proof of income, have horrible credit, and can’t find anyone to serve as a co-applicant, you may have no choice but to resort to bringing some of your belongings to a pawnbroker in order to obtain a collateral-based loan. Pawnbrokers only deal in little loans, so they’re definitely worthy of consideration if you’ve been unable to borrow money any other way.
You’ll only be able to borrow a fraction of what the item you’re pawning is worth and, if you go delinquent for too long, you’ll lose ownership of the item completely. Thus, if you don’t think you’ll be able to repay the loan on time, it may be wiser to simply sell the items on the second-hand market for a higher price than any pawnbroker would be willing to give you.
It’s Possible (But Not Advisable) to Apply for Multiple Little Loans at The Same Time
Once you’ve been successfully approved and funded through one small loan, you might get the idea to immediately apply for another with a different lender on the same day.
That’s a common temptation faced by bad credit borrowers and often it proves to be irresistible for individuals who are in a financial bind and already have a history of making irresponsible decisions. While it’s possible to be approved for multiple little loans on the same day, you should never borrow a total amount that’s more than what you’ll be able to comfortably repay.
Taking the multiple loan approach might get you more money in the short-term, but eventually, your debts will go into collections and put you in a worse situation than you were in before you applied for the loans. As a rule of thumb, it’s best to never have more than two personal loans active at any given time to reduce your chances of causing further damage to your credit score.