With bad credit, how much you can borrow in the UK is driven less by a fixed “income multiple” and more by a lender’s affordability assessment. You may generally borrow up to 3-4 times your annual income. With a good credit score, you may borrow 4.5 times your income.
If your income, regular outgoings, existing debts, and the loan’s monthly cost at the rate you’re offered. In practice, this usually means smaller maximum loan amounts and tighter affordability headroom than for borrowers with good credit, even if your salary is decent.
The blog discusses how much you can borrow with a bad credit score in detail. It may help you know what lenders consider while analysing such applications.
What aspects decide the amount that you can borrow with a bad credit score?
You may generally need to check bad credit loans in the UK from lenders that deal with such profiles.
Here are some aspects that decide the amount that you may get with a bad credit score:
- Income and employment stability: Individuals with regular and stable employment may get a higher amount than a self-employed individual.
- Employment years: How many years have you spent in the current firm and overall as part of the earning history? Are there any gaps in the income?
- Disposable income: How much money have you saved after meeting the living costs? The higher the savings, the better amount you may get
- Current debt count: How much debts you deal with currently? Does it leave any space for you to manage another loan?
- Use of collateral: If the lender asks for collateral on a loan, you may get a higher amount at low interest rates. It is generally asked for only if you need to borrow an amount more than £10000.
- Current CCJ or bankruptcy status: Individuals with recent CCJs and bankruptcy status may struggle to get a loan. Even if one gets it, the amount remains less. Also, the lenders may charge high interest rates.
What are income multiples?
An income multiple is a number by which the lender multiplies your gross annual income. Lenders typically restrict the multiples to 3.5%-4.5% times your gross annual income. However, the standard income caps remain 4-4.5x. For example, if a lender offers a 4x multiple on a £40000 salary, your baseline minimum cap is £1,60,000.
However, for an unsecured personal loan, there is no set income multiple or standard 4.5x salary rule. Instead, lenders set minimum loan amounts (for example £1000-£15000) and run mandatory affordability checks. It helps them determine the approximate amount one may qualify for given the finances and income.
The borrower’s credit history affects the amount one may qualify for and the interest rates one gets.
What are the typical loan amounts and terms on a bad credit loan?
Bad credit loans in the UK typically range from £50 to £15,000 for unsecured and short-term loan options. Short-term loans or emergency loans are usually high-interest loans with small repayment terms of up to 12 months. The repayments remain fixed over the loan term. Here are the loan options and amounts that you may qualify for accordingly:
- Doorstep loans
You may get up to £1100 on a doorstep loan. It is ideal for individuals needing urgent cash at home or at the office. You may get one even if you lack a bank account or credit history. The approval depends on your current income and proof of employment. These are unsecured loans that do not require a guarantor if you can afford the loan.
- Pay weekly loans
Pay weekly loans are short-term loans that let you repay the dues in weeks rather than months. You may get up to £5000 on these loans without providing collateral. These loans are ideal for people who get paid weekly and want to clear the payments that way. You may use the loans for critical needs like car repairs, paying rent or urgent home improvements.
- £3000 loans
As the name suggests, you may borrow these loans if you need exactly £3000 for your needs. If you struggle to determine the exact amount, the lender may help. You can also use a loan calculator or pre-qualify to determine how much you should borrow. You may get the amount without requiring a guarantor or collateral. The loan approval is instead based on affordability.
How much can you borrow if you earn £28000 gross and pay £200 in monthly commitments?
As mentioned above, you may get £1000-£15000 with 12-60 months of repayment term with a bad credit score. However, if you earn £28000 gross and dedicate £200 every month to regular bills plus £900 rent separately, here is how much you can borrow:
- For example, you get a loan quote of a loan at 29.9% APR for 36 months of repayments
- Your new monthly payments will be £250-£300, after meeting the basic outgoings
- At 29.9% APR for over 36 months, a £300/month payment equates roughly to £7000-£7,500. So, precisely, you may be able to borrow £7,000-£7,500 on the loan.
However, you may get a lower APR with the same income if your credit score is good. You may get a higher amount with almost similar monthly payments.
Precisely, with a bad credit score, the APR is high. It shrinks the amount you may get. Moreover, you are offered a high interest rate.
What aspects may improve the chances of getting a higher amount with bad credit?
If you can afford the repayments without affecting the budget, you may qualify for a good amount. Here are some aspects that may improve the chances of getting a high amount:
- High and well-documented income: you must have a consistent income history of at least 12 months with valid proof. Self-employed must reveal accounts of 2-3 years.
- Reduce the debt commitments: Pay down small debts, consolidate heavy debts and pay high-interest dues first.
- Provide a guarantor: Check whether you can get a guarantor with an excellent credit score and income.
Bottom line:
Therefore, the amount you may borrow with a bad credit score depends on multiple factors. It could be income, debt-to-income ratio, employment consistency, guarantor, collateral involvement, etc. Multiples are usually calculated for secured loans rather than unsecured loans for bad credit. It helps the lender and the borrower understand how much they can borrow against the gross income.
