Can you take out a £10,000 loan with a bad credit rating?

Ailsa Adam October 10, 2023

£10,000 loan is not a small sum; you can use this amount to do up your house or start a business venture. Undoubtedly, you must have a good credit score to qualify for such a large sum. However, there are chances that you can get the nod despite a bad credit score.

Poor credit shows that you have failed to manage your previous payments. This does not get in your way if you need to borrow money for emergency expenses such as car repair, laptop repair and the purchase of a tumble dryer.

Since you are borrowing a large sum, a lender will undoubtedly check your repaying capacity, not to mention your credit score reflects it. It is almost impossible to make a quick escape.

Well, there are chances to qualify for a loan with bad credit worth £10,000, but it is not as easy as you think. Here are some of the tips on how you can improve your chances of getting such a big loan worth £10,000 despite a poor credit score.

  • Your credit score should not be too bad

You cannot underestimate the need for a good credit score. As you do not know which credit bureau your lender will contact to get your credit report, you should ensure that your report has the right and accurate details across the board.

A credit score range varies by credit reference agencies, but the focus of your lender will be how good your credit score is. There are no chances for applying for a bad credit £10,000 loan if your credit score falls within a very poor category.

Even if it is not up to snuff, you should ensure that your credit score is closer to a good credit rating. For instance, according to Experian, a poor credit score is between 561 and 720. Make sure your credit score is not less than 650. Bear in mind your credit score is not the be-all and end-all to decide your eligibility.

  • Your income sources matter too

It is likely that your credit score is perfect, but do you think that is enough to prove that you can pay off your debt on time? Your credit rating just reflects your previous payment behaviour. It does not indicate that you can repay your current debt. Sufficient income is a must to ensure that you will stay committed to payments.

Therefore, it is crucial that you manage to prove your repaying capacity. It is good if your current income is quite good. If not, you should grab a part-time job. Keep in mind that no income means no loan, even though your credit score is excellent.

Before borrowing £10,000, you should ensure that you can repay the debt on time. Try to check it through an online calculator. This can let you know the estimated monthly payments.

  • Arrange security

As a £10,000 loan is a big amount of money, no lender would like to sign off on your application without any collateral. Your credit score is already bad, and it increases the risk of a default. In order to minimise it, your lender should arrange security.

The value of the collateral should be worth more than the amount of the loan, and it must not be depreciated because a lender will liquidate it to cover the money in the event of a default. Putting down collateral will help you get money at a lower interest rate, but there is no guarantee for that.

Some borrowers have shared their experience that credit score damaging effects cannot be offset by the amount of security, which means interest rates will be high. If you do not arrange security, your lender might not give the nod. If you cannot arrange security, you should try to borrow the lower amount of money.

Most of the time, a lender will approve up to £2,000, but a few lenders can be willing to give the nod for a 3000-pound loan in the UK.

  • Avoid applying to multiple lenders at the same time

Make sure not to make the mistake of applying to many lenders within a short period. Thinking that a lender could turn you down to approve such a big amount when your credit score is already bad, borrowers often apply to many lenders at a time.

This is the biggest mistake, as this will worsen your chances of getting the nod. This is because each lender will run hard inquiries on your credit report, and each inquiry will pull at least five points. Multiple inquiries at the same time can badly affect your credit score.

This will further pull your credit points, and chances are you fall into a very poor credit score range. A lender might assume that you are in desperate need of money and, therefore, you have applied to as many lenders as possible. This will weaken your credit file, and your lender will turn you down.

What are the upsides and downsides of a bad credit £10,000 loan?

It is plausible to get the nod for bad credit £10,000 loans, but it does not mean that you should throw caution to the wind. These loans have certain drawbacks, too. You should consider both:

Competitive interest ratesThe risk of falling into debt is high due to its big size.
Flexible repaymentsOrigination fees, late payment and default fees
Helps make credit reports better with timely paymentsInterest rates could be higher even if you put down collateral
Fixed monthly instalmentsThe risk of losing collateral is high in case of a default.

The bottom line

Yes, you can take out a £10,000 loan with a bad credit rating, but your credit score should be in the range of very bad credit score. You must have a strong repaying capacity. However, nothing can offset the damaging effects of each other. Consider borrowing a lower sum to speed up the process.

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