Getting a short term loan after bankruptcy

Can I get a short term loan while bankrupt?

Theoretically yes – it’s not illegal. You do however have to disclose that you are bankrupt if you apply for credit of more than £500. Below this amount, lenders may still ask during the application process, and you must answer truthfully. Lenders can also see if you have a bankruptcy on your credit report.

You’ll be extremely limited in terms of the lenders you can choose from, and the interest rates are likely to be close to – or right on – the legal maximum for high-cost short-term credit (0.8% per day).

If at all possible, wait until your bankruptcy is over before applying – high-cost short-term credit is extremely expensive. Applying for a loan when you’re in any challenging financial situation isn’t a decision that should be taken lightly, and this is especially true when you’re bankrupt. Consider why you’re taking out the loan and if there’s any other way you can pay for what you need, or if you can defer the expenditure.

Can I get a short term loan if I have a bankruptcy on my credit report?

Bankruptcy stays on your credit report for 6 years. Having a bankruptcy on your credit report may look bad to most traditional lenders, but lenders offering short term loans tend to be more lenient in their eligibility criteria, often focusing on an applicant’s ability to repay.

As your assets and income may have been affected by bankruptcy, deciding whether or not you can afford the repayments is an important consideration. What will your repayments be, and how will they work with your budget?

What other types of bankruptcy loans are available?

If you’re in need of financing and have a bankruptcy listed on your credit report, these are some of the credit options that may be available to you:

• Bad credit personal loan. Bad credit personal loans are available from certain lenders, some for large amounts up to £15,000.
• Guarantor loan Applying with a guarantor who has good credit may increase your chances of approval.
• Car finance. Secured loans can be easier to be approved for than unsecured loans, as they are less of a risk to a lender. You can consider a car loan with the vehicle as security.
• Approved overdraft. Your current bank may be willing to approve you for an overdraft if you have a good history with the bank. This allows you to withdraw cash above your available balance.

How to get approved for a bankrupt loan

While there are lenders who will consider applicants who are in bankruptcy or who have previously been bankrupt, meeting the minimum eligibility criteria and filling out the application isn’t all it takes to be approved. Here are some of the factors lenders will consider when reviewing your application:

1. Ability to manage your repayments. This is the main requirement lenders focus on when considering you for a loan. Does your income allow you to easily manage your repayments after taking into account your financial commitments?
2. Your credit report. Bankruptcies affect your credit rating for up to 6 years. Lenders will take into account your history before and after bankruptcy and make a decision based on all the facts available.
3. Employment. You may be required to be employed, although there are some unemployed loans available. Different lenders have different restrictions. Some might not consider you if you’re self-employed or work part-time. Check with the lender before applying.
4. Income. How much do you earn? Lenders often have minimum income requirements in place. They may allow your income to be from employment and welfare or may need it to be solely from regular employment.
5. Benefits. While you may still be considered for a loan if you receive benefits, lenders often have restrictions as to what percentage of your income can be made up of benefits. Usually, your loan repayments can’t exceed a certain percentage of your welfare income.

If you do decide to get a loan, pay it off on time! This will help rebuild your credit after bankruptcy, which in turn can mean you’ll have access to better rates down the road.

What about using a matching service?

You may wish to consider using a payday loan matching service. These generally use a soft credit search and a panel of lenders that they refer applicants to, so you’ll only have complete a single application form rather than having to go through the process several times with several different lenders.

Bottom line

Bankruptcy will harm your credit score, but it’s not necessarily the end of the road for your ability to be approved for a loan. Realistically, you’re likely to be charged interest at a significantly higher rate for the 6 years the bankruptcy affects your credit rating, and while you rebuild your credit score, however some specialist lenders will consider your application for credit.

Before you apply, check the eligibility criteria, and use a soft-search/eligibility-checker if the lender offers this facility (if it doesn’t perhaps call to discuss your situation). Above all, only apply for credit if you’re certain you can afford it.

Payday loans

Frequently asked questions

• Do I have to disclose to lenders that I'm in bankruptcy?

  You are legally obliged to disclose that you are bankrupt if you apply for credit of more than £500. Lower than this, if the lender’s application includes a question regarding bankruptcy, it can be considered fraud if you answer untruthfully. Lenders can also see if you have a bankruptcy on your credit report.

  You can review different lenders’ eligibility criteria and call their customer service lines in order to find out which ones would consider bankrupt applicants before applying.

  Ideally, wait until your bankruptcy is over before applying for any form of credit.

• Are there loans that don't require credit checks?

  A responsible lender will run a full credit search before lending, however many payday and short term lenders aren’t expecting flawless credit files, and may be more interested in how affordable the loan would be for you. Many lenders now offer a “soft search” or “eligibility checker” facility – these are fantastic, and allow you to get a good idea of whether or not you’d be accepted without affecting your credit score.

• Can I apply for a loan to travel or take a holiday?

  Some loans have restrictions on what they can be used for, while others don’t. Most short term loans don’t have these kind of restrictions. However, since these loans are so expensive, you should only take one out as a last resort having explored other options. They’re not suitable for covering regular expenses, or for frivolous one-offs.

  It’s always crucial to be sure that you’ll be able to make the necessary repayments before taking on debt.

• Will bankruptcy ruin my credit score?

  A bankruptcy will remain on your credit report for about 6 years, however, this doesn’t mean your credit score can’t improve during this time. Initially when you declare bankruptcy your credit score will drop significantly. But the impact will reduce each passing year especially if you put some effort into improving your credit score.