Getting the best loan with bad credit in 2016 means finding a lender who is transparent about rates and fees, flexible on terms, and willing to view you as more than your credit score. It also means avoiding predatory lenders and common scams that can keep you trapped in a cycle of debt.
A loan won’t solve all of your problems, as excessive debt is often a symptom of bad financial habits you should address. But when used properly, good loan can be the tool you need to get a handle on your finances, find some breathing room in your budget, and improve your credit. We did some research to find some great options that can help. We found the providers below to be the most transparent in the bad credit loan category. You can browse these lenders, or read on for our research on each provider.
Whether it’s because you have a thin credit profile or a history of missed payments, a bad credit score will affect your interest rate and a bank’s perception of your ability to pay them back. Your loan may also be capped at a lower amount to help the lender lessen its risk, and you may even have to offer more collateral to secure a loan.
You’ll likely see high interest rates: For bad credit loans, it’s commonplace to see rates over 20%. Make absolutely certain that you can pay these rates, and that you don’t have any better options. Borrowers with better credit are rewarded with lower rates, so if you’re able to hold off and improve your credit score, you might be able to qualify for a much better rate in a year or so. In the meantime, you also might find the best credit cards for bad credit helpful.
The Simple Dollar’s Top Picks for the Best Loans with Bad Credit
We’ve researched companies that specialize in lending to customers who may have some blemishes on their credit report. Here’s who came out on top in our search for the best bad credit personal loans:
- Best Unsecured Bad Credit Loans: Avant
- Best for Really Bad Credit: Bad Credit Loans
- Best Secured Bad Credit Loans: Springleaf Financial
- Best Peer-to-Peer Bad Credit Loans: Peerform
One note before going forward: Bad credit means different things to different lenders. Some lenders won’t consider your application if you have a credit score below a certain number, while others will make it a smaller part of their lending decisions. For the purposes of this article, I focus on lenders who will make loans to customers with credit scores under 640. This score is considered “average” by most lenders, but lending criteria tightens considerably below this mark.
The Best Bad Credit Loan Options
Best Unsecured Loans: Avant
Avant focuses on loans for “in between” borrowers — those with scores of roughly 580 to 700. Unlike many online loan startups, it is not a peer-to-peer lender that relies on individual investors to fund loans, instead directly funding each loan itself. That’s good news if you need your funds quickly — you may even have your loan the same day you apply.
There are also no loan origination fees with Avant. The borrowing limit of $35,000 is relatively generous among lenders who work with subprime credit. However, if your credit score is under 580, you may not be able to get a loan with Avant, and secured loans are not an option.
Why You’ll Like It
- APRs starting at 9.95% for borrowers.
- Available in 44 states.
- Loans are immediately funded, unlike peer-to-peer lenders.
- No charge to originate loan.
- High borrowing limit of $35,000.
- Choose payment terms as short as one year or as long as four years.
- A+ rating from the Better Business Bureau.
What to Watch Out For
- Does not offer secured loans.
- If your credit score is under 580, you’re out of luck.
Best for Really Bad Credit: Bad Credit Loans
When it comes to getting a loan with really, really bad credit, your options are limited… and usually not very good. The loans that do exist are often of the “payday” variety: low-dollar, short-term, and high-interest loans based not on your credit score but your regular income – which lenders gain access to through your checking account. While a payday loan can provide much-needed cash in an emergency, the industry is plagued by accusations of predatory practices that trap vulnerable borrowers.
BadCreditLoans.com is not a lender itself, and instead attempts to rise above this fray (if not very far above it) by connecting borrowers with poor credit to a network of willing lenders. To apply online, you must be 18 years old, have a valid phone number and email address, provide proof of citizenship or legal residency, show that you’ve been employed for 90 or more consecutive days with an after-tax income of at least $1,000 a month, and hold a checking account in your name.
In theory, using BadCreditLoans.com should spur competition and work in your favor: If you receive several loan offers, you can choose the best of the bunch. However, there’s no guarantee that you’ll receive multiple (or any) loan offers, and the ones you do get are unlikely to wow you: The company says the annual percentage rates (APRs) its lenders offer range from 230% to an incredible 2,330%. It’s important to remember that you’re under no obligation to accept these offers.
To be fair, one reason these loans carry such comically (or tragically) astronomical APRs is their short payback periods. If you’re paying $50 in interest and fees to borrow $300 over the course of 12 months, that’s an APR of about 29% – credit card-esque, but not appalling. Shorten the time frame to one month, however, and you’re looking at an APR of 300% — and that’s loan shark territory.
As a temporary, emergency lifeline, a short-term loan is not in and of itself a terrible thing. The trouble is, many people have difficulty paying back the balance in such a short time frame. When that happens, they can roll over the loan for another couple of weeks — making the original loan even more expensive, and risking entry into a vicious cycle of debt. In a comprehensive study of the payday loan industry, the Consumer Financial Protection Bureau found that two-thirds of payday loans went to repeat borrowers who had seven or more transactions in a year, and the majority of borrowers paid more in fees and interest than they initially borrowed.
So, we’ll reiterate: Before accepting an unsavory loan offer, be sure that you have no other options, and that you can definitely pay back the entire loan when it’s due.
Why You’ll Like It
- Even borrowers with truly bad credit may qualify for a loan of up to $1,000. (Those with better credit scores can apply for larger loans.)
- Bad Credit Loans solicits offers on your behalf from its network of lenders so you can choose the best terms.
- It’s free to apply, there’s no obligation to accept any offers, and there’s typically no inquiry on your credit report.
- Most applicants can be pre-approved in as little as five minutes, according to the company, and you can receive your funds via direct deposit in as little as one day.
What to Watch Out For
- Sky-high APRs that range from 230% — at the low end – to an astonishing 2,330%. Make no mistake, these are short-term, payday-style loans, and only to be used in true emergencies if you’re sure you’ll be able to pay off the balance in time.
- Bad-credit loans are generally limited to $1,000 or less.
- Beware of renewing your loan and getting trapped in a cycle of debt.
Best Secured Bad Credit Loans: Springleaf Financial
Springleaf Financial is among the best-known options for bad-credit borrowers. Their loans typically range from $1,500-$10,000 and APRs typically from 25%-36%. However, depending on your credit profile, you may be able to receive a higher loan amount and lower APR. The company specializes in secured loans, though unsecured loans are also available. You can apply online, but Springleaf has over 820 branches in many states.
Why You’ll Like It
- Works with borrowers who have credit scores under 600.
- Offers both secured and unsecured loans.
- Has more than 820 branches.
- In business for over 90 years; A++ accredited with BBB.
What to Watch Out For
- Website is vague about potential APRs and loan amounts.
- Only available in 41 states.
Best Peer-to-Peer Loans: Peerform
Peerform is a peer-to-peer lender with more liberal credit standards than well-known competitors including Prosper and Lending Club. They will consider applicants with credit scores as low as 600 and extend loans up to an impressive $25,000. The website is nicely detailed, with clear APRs and fees.
However, borrowers who need money quickly should know that it can take up to two weeks for a loan to be funded with Peerform, and there is no guarantee that investors will fully fund your loan (a risk with all peer-to-peer lending options). There is also a range of fees associated with Peerform loans, including an origination fee of up to 5% of your loan, and loans are available in only 37 states.
Why You’ll Like It
- Low advertised APRs (7.12% to 28.09%) for borrowers with mid-tier credit.
- High borrowing limit of $25,000.
- Website is very clear about potential APRs, loan amounts, and fees.
What to Watch Out For
- Requires better credit score than some other lenders (600+).
- Does not offer secured loans.
- This is a newer company, and is not yet accredited by the BBB.
- Loans not immediately funded.
- Several fees may apply, including an origination fee up to 5%.
Online lender NetCredit helps borrowers with scores as low as 550 get long-term, large-dollar unsecured loans up to $10,000 — uncommon at this credit level. The company offers flexible term lengths and repayment options, and its website is impressively clear about rates and terms. There are no fees other than the interest you pay on your loan.
However, APRs at NetCredit range from 35% to a comically high 299% for those with the poorest credit; that’s loan shark territory, and unless you can pay off your loan very quickly, you should consider investigating secured loans or using a cosigner instead. If you want a more established company, also beware that this is a new lender that lacks BBB accreditation.
PersonalLoans.com allows multiple lenders to solicit your business after you fill out just one application. APRs are competitive and there are several types of loans, which top out at a generous $35,000. Of course, this is a referral site, so your terms, fees, and APRs will vary depending on the lenders who contact you. This kind of information can be easier to determine with a direct lender.
OneMain Financial, formerly CitiFinancial, has longevity on its side: It’s been in business since 1912. The company specializes in personal loans of up to $15,000, and offers both unsecured and secured loans to accommodate a wider range of borrowers who have an average credit score of 630. The company has significant geographic reach, making loans in 43 states. It also has more than 1,000 branches nationwide for those who want to do business in person. Unfortunately, the website gives potential borrowers little idea about potential APRs, and a significant number of reviews complain of poor customer service.
How Can I Fix My Bad Credit to Get a Better Loan?
Because even the most sympathetic lender won’t give you a great APR if you have bad credit, we recommend making every effort to give your a bad credit a boost before resorting to a loan. It’s not a quick process, but the effort will be more than worth it in the long run. Here are a few of your first steps to better credit:
- Get to know your credit report. Is your credit as bad as you think it is? Have you actually checked your credit report lately? Surprisingly, the answers to those questions are “no” and “no” for many people. If you haven’t already done so, pull a free credit report. This will also let you verify that there aren’t any errors or fraudulent activity keeping your credit in the dumps. If there are, you can file a dispute. Check out our guides on the Best Credit Report Site and the Best Free Credit Report Site if you need recommendations.
- Make more payments, and do it on time. It’s probably pretty obvious that you need to pay your bills on time to raise your credit score. (If you’re having trouble, set up automatic payments that can save you from forgetting.) Less obvious might be that making smaller payments more frequently can help, too, because it can show you’re using less of your available credit — a good thing for your credit score — when credit bureaus look at your data.
- Don’t use most of your available credit, even if you pay it off on time. Your credit utilization ratio — your outstanding balance vs. your total credit limit — should be no more than 30%, but 10% or less is ideal, experts say. That means that even if you have a $10,000 limit on your card, charging more than $3,000 on it can negatively impact your credit score. This holds true whether or not you pay off your balance every month.
- Resist the urge to close accounts. Got a credit card you don’t use? It’s probably tempting to close your account, but it’s best to leave it open. Why? Again, having credit that you actually don’t use is good for your score. Keep the account active by using it to pay a small bill from time to time. Having the same account open for several years also lengthens your credit history, which has a positive effect on your score.
For more tips on repairing your credit, take a look at our in-depth article, How To Raise Your Credit Score.
What Kind of Loans Are There for People with Bad Credit?
Loans for bad credit range from conventional personal, auto, and home loans with less-favorable terms to short-term, no-credit-check loans like payday and auto title loans. All have pros and cons, but some are a much wiser choice than others — and some should be avoided entirely.
Personal loans for bad credit, available through brick-and-mortar banks, credit unions, and online lenders including those profiled above, are loans made for any purpose. The amount the lender will be willing to part with varies widely based on your credit and whether the loan is secured (backed with collateral that your lender can seize if you cannot pay back the loan) or unsecured (no collateral required). If you want to do business locally, credit unions can be a particularly good choice because they might be more flexible with their lending criteria than bigger banks – especially if you’re a longtime customer.
Experts warn against borrowing from lenders who don’t thoroughly check your credit history, repayment ability, and other financial circumstances. You should also be wary of expensive insurance add-ons that ensure the loan will be paid back if you die or become disabled.
If you have very bad credit, secured loans can be a viable option — it will be easier to qualify and you’ll receive more favorable terms, such as a higher loan amount and a lower APR. However, you must be absolutely sure you can repay your loan on time or you could lose whatever collateral you’ve agreed to use — typically, your home, car, or savings account.
Another option is getting a co-signer with better credit to sign for a loan with you. The lender will then use the co-signer’s credit to determine the terms. Of course, doing so puts the co-signer at huge risk. He or she is equally responsible for payments if you suddenly can’t afford them. If you think there’s any chance you will default, save your friend or family member the trouble of becoming a co-signer or you’ll risk their finances — and your relationship — too.
Featured Personal Loan Companies
Can you get a mortgage with bad credit?
Even after the subprime mortgage crisis, it’s still possible to get a mortgage with bad credit. Of course, your choices will be more limited. Experts say it’s wise to work with mortgage brokers who can help you evaluate your options. One of them is an adjustable-rate mortgage, which can be easier to qualify for than conventional fixed-rate loans. But these loans come with greater risks that I describe in my post Best Mortgage Rates.
One of the best places to look is the Federal Housing Administration’s loan program. Because the government backs these loans, lenders can still offer competitive interest rates while accommodating borrowers with credit scores of 580 and above. You’ll need a down payment of at least 3.5% — far less than the typical 20% required for conventional mortgages. The major downside is that you’ll pay fairly high mortgage insurance payments over the life of your loan.
Experts say one related kind of loan to avoid is a mobile-home loan. High interest rates are very common, and even if you can get one with terms comparable to those of a regular subprime mortgage, mobile homes depreciate so quickly that refinancing is difficult.
Bad credit auto loans
Bad credit auto loans are simply loans for car buyers with bad credit that have less favorable terms — generally a higher APR and a lower loan amount — than auto loans made to buyers with good credit.
There are reputable lenders who focus on bad credit auto loans that I detail in a separate post on the Best Bad Credit Auto Loans. However, beware: Unscrupulous dealers may take advantage of bad-credit customers with shady tactics including leading you to believe your credit is even worse than it is or requiring you to buy add-ons in order to get financing. In general, you also shouldn’t pay interest rates in the high double digits or sign for a loan with terms longer than five years.
Payday loans might be the most ubiquitous loan for people with bad credit. Unfortunately, they’re also almost always a bad deal for you.
Payday loans are typically small, usually $500 or less, and made for a short period of just a week or two before repayment is required on your next payday. They’re easy to get as long as you provide proof of income — there’s usually no credit check. The lender usually requires you to write a check for the loan amount plus interest that can be used for repayment. You may even give the payday lender electronic access to your account.
The main problem with payday loans is the astronomical finance charges. According to the Consumer Finance Protection Bureau (CFPB), you may pay $10 to $30 to borrow $100. If you pay $15 to borrow $100, that’s an APR of a whopping 400%. Many lenders allow you to pay only the interest and roll over the loan. This tempting scenario traps many low-income borrowers in a cycle of debt since they can only afford to pay back the interest. In fact, the CFPB has found that more than a third of borrowers take out between 11 and 19 payday loans over the course of a year. A quarter owe money to payday lenders for more than 80% of the year.
Some states have cracked down on payday lenders by capping interest rates, but 32 still allow the practice unabated. Bottom line? You’re best off avoiding payday loans.
Auto title loans
Do not confuse auto loans that are meant for car buyers with auto title loans. Auto title loans require you to use your car as collateral in order to get a loan that can be used for any purpose. The amount of these loans varies, but it’s usually for much less than your car is actually worth. You usually won’t need a credit check to get an auto title loan.
Auto title loans have short terms (usually 30 days or less) and extremely high interest rates that can range from 84% to more than 300%, according to the Center for Responsible Lending (CRL). These kinds of loans can easily trap borrowers who can’t afford to repay the loan in a cycle of debt as they continually renew the loan with interest-only payments. The CRL and Consumer Federation of America found that a borrower of a $951 auto title loan pays more than $2,000 in interest on a loan he or she renews eight times.
Many lawmakers have cracked down on auto title loans, which are now illegal in 31 states, according to the CRL. If auto title loans are still legal in your state, beware. Like payday loans, they simply aren’t a smart choice for those with bad credit.
Spotting Bad Credit Loan Scams
Bad credit puts you in a vulnerable position when you’re searching for a loan. But just because your terms won’t be as favorable as they would be with excellent credit doesn’t mean you should accept any old offer. Keep your eyes peeled for these red flags while searching for the best bad credit loans:
- Guarantees. Legitimate lenders won’t tell you that you can get a loan without knowing your income, credit score, and other personal information. Any lender who guarantees that you’ll qualify before evaluating your information is probably bad news.
- Upfront fees. It’s against the law for lenders to charge you simply for filling out an application.
- Lots of uninitiated contact. Be careful if you’re getting constant mailings or calls from a certain company. Legitimate lenders don’t need to hound potential customers.
- Fishy-sounding names. Some unscrupulous companies will closely copy the names of legitimate lenders to profit from their better reputations. Make sure you’re really doing business with the right company.
- Pushy requests for personal information. You should only provide personal information to a company you trust once you know what kind of loan you’re applying for. Be particularly cautious about giving out information over the phone, especially if you didn’t initiate the call.
- Scare tactics. It’s common to shop around for the best deal and wise to take time to evaluate how much you can safely borrow. Your lender shouldn’t pressure you to make a deal before you’ve considered your options.
Above all else, take a few minutes to check up on a lender yourself. Look at online reviews and the company’s Better Business Bureau profile. Be suspicious of consistently positive or negative reviews — the truth is probably somewhere in between. Double-check a company’s address, too. Being proactive at the beginning of your search can save you a lot of trouble down the road.
How I Picked the Best Bad Credit Loans
Interest rates are a big consideration when you’re searching for a loan with bad credit, but there are other factors to consider. Here are the criteria I focused on in my search for the best loans for bad credit:
- Higher loan limits: While it’s common for some lenders to cap loans for bad credit at low amounts such as $1,000, the best lenders allow larger loans for those who need them.
- Reasonable APRs: Unfortunately, you’re not going to land a low interest rate with a bad credit score. Exorbitant APRs are out there, especially if you have very bad credit and are trying to get a loan without collateral. The best lenders still keep their interest rates competitive relative to your credit score.
- Reasonable fees: Common fees include charges for loan originations, late payments, prepayments, and unsuccessful payments. Some lenders charge most or all of these; others don’t charge any fees at all. The best lenders keep fees to a minimum and charge a reasonable amount for those they do require.
- Flexible terms: You may want to pay off a loan as quickly as possible to save on interest, or you might want a longer term to keep your payments low. The best lenders don’t lock you into one or two predetermined terms, such as three or five years.
- Easy-to-find specifics: The best lenders understand that potential borrowers want to know potential APRs, loan amounts, terms, and fees before they start an application and include that information on easy-to-find pages on their websites.
- Extensive reach: Different state regulations mean lenders may operate only in certain states. The best lenders have a wider reach.
- Reputation: I considered each lender’s online reviews and status with the Better Business Bureau. BBB accreditation isn’t a necessity, especially for newer companies, but it is a plus. I also considered how long the company has been in business. I gave the least weight to individual reviews, as it’s common for prospective borrowers to give negative reviews for reasons such as being denied a loan.
Finding the Best Loan When You Have Bad Credit
Be sure to evaluate a range of choices when you’re searching for the best bad credit loans. You’ll want to find a lender who knows your credit score is just one part of a bigger picture, and you’ll need to make sure you understand what kind of loan you need, what kinds of loans to avoid, and how to avoid scams.
You’ll want to consider all of your options to find the best loans for bad credit that work well with your unique situation. If you need a place to start, I particularly recommend Avant for unsecured loans, Springleaf Financial for secured loans, and Peerform for peer-to-peer loans. All are reputable lenders willing to work with borrowers who have less-than-perfect credit. Remember to keep your expectations realistic, however. You will undoubtedly receive higher interest rates than borrowers with good credit. And if your APR is truly sky-high, don’t be afraid to think outside the loan box about other ways to get the cash you need.
Featured Personal Loan Companies
If your bad credit is symptomatic of deeper debt problems, you may also want to check out our series on debt management: the Best Debt Management Companies, the Best Debt Settlement Companies, and the Best Debt Consolidation Loans.