How to Get a Loan With Bad Credit

Bad credit personal loans have been around for some time, but they tend to gain popularity in times of financial tumult. It wasn’t too long ago that a bad credit score was a major obstacle that could not be overcome, and lenders wouldn’t consider a score that dipped below 670.

But a few things happened in the last decade or so to change that. We experienced the chaos of the mortgage crash and the subsequent recession, and of course, COVID-19. Mass job losses and furloughing have also played their part in bad credit. There’s also a group of consumers that don’t have a credit score and need to start somewhere.

So what happens when a person with bad credit needs a loan? And how do they navigate that process?

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In this article

    Can I even get a personal loan with bad credit? 

    Having bad credit won’t stop you from getting a personal loan, but it won’t be on the best terms. People with bad credit have limited options, so they would likely have to go through a bad credit lender. A bad credit personal loan will come with:

    • Low principal amounts
    • High interest rates and fees
    • Short repayment terms

    With more people finding themselves in the position of needing a personal loan, more lenders have stepped up to provide the financing. That means applicants, including the ones with bad credit, have options to choose from.

    One way to get better terms on bad credit loans is to offer an asset as collateral for a secured loan rather than take out an unsecured loan. You risk losing your property if you don’t pay back the loan, though, so make sure you can pay back the loan on time and in full according to the terms.

    Read: Best Emergency Loans for Bad Credit

    How to use a bad credit loan to improve your credit

    If you’re thinking about getting a personal loan to improve your credit but already have bad credit, you must be a responsible loan borrower or your situation could get worse. Only take out a bad credit loan if there are not any better options available to you.

    Here are the steps to take to improve your bad credit with a personal loan:

    1. Know how much you can pay monthly. Before you apply, check your budget to know the maximum you can afford to pay, and try to find loan terms with a lower payment.
    2. Shop around. Get quotes from multiple bad credit lenders to find the best terms you qualify for.
    3. Check if they report to credit bureaus. The only way your credit will improve is if the lender reports your on-time payments. Ask if they do and if not, avoid that lender and find one who does.
    4. Understand the terms. Before you sign on the dotted line, make sure you understand the fees charged and how long it will take to pay it off.
    5. Pay on time. Missing a payment could cause your bad credit to get worse. Set up autopay if you can and see if there is a discount for it.

    What is a bad credit personal loan?

    A bad credit loan is a personal loan for borrowers who have lower scores than what lenders would consider as fair. On the FICO Score scale of 300 to 850, a bad credit score is one below 670. More specifically, a score between 580 and 669 is considered fair, and one between 300 and 579 is poor.

    Applicants with scores above 670 have access to more variety of loans at lower costs. One of the ways lenders make up for the risk of lending to someone with bad credit is by increasing the interest rate. It’s unlikely for anyone to have a score below 300. However, those who have no credit may have a score of 0.

    What is a good or a bad credit score? 

    A number of entities offer scoring models that are used to assess your risk by assigning a number or letter to you. For example, the most common, FICO, has a scoring model that ranges from 300-850, with 850 as the best.

    FICO RangeCredit Score
    Very Poor300-579
    Fair580-669
    Good670-739
    Very Good740-799
    Exceptional800-850

    Experian RangeCredit Score
    Poor<580
    Fair580-669
    Good670-739
    Very Good740-799
    Exceptional800+

    TransUnion VantageScore RangeCredit Score
    F300-600
    D601-657
    C658-749
    B720-780
    A781-850

    How to get a personal loan with bad credit 

    Check your credit online.

    Before applying for a loan, run a credit check on your own. That way, you’ll know ahead of time what your credit score is and how likely you are to get a personal loan. Once you know your credit score, you can shop around for lenders that offer loans to borrowers in that range.

    [ Read: Are You Checking Your Credit Reports Often Enough? ]

    Credit scores range from 300 to 850. If your score is in the high 700s or above, you likely won’t have any trouble getting a loan at a competitive interest rate. Many lenders require borrowers to have a credit score of at least 600 to 650. But keep in mind that if your credit score is in this range, you’ll probably end up paying a higher interest rate.

    Compare offers

    Once you know your credit score, it’s time to shop around for a loan. Ideally, you want to find the lender that offers you the best interest rate for the loan amount and loan term you’re looking for. Choose a few lenders that fit your criteria, and fill out an application. As you compare the loan offers, there are a few things to keep in mind:

    • APR: Look for lenders that will give you the lowest interest rates for the loan terms you want.
    • Loan amount: Each lender has a minimum and maximum amount it’s willing to lend. Make sure the lenders you’re considering offer the amount you need.
    • Repayment term: Personal loan terms can range from one year to several years. Consider how quickly you want to pay off your debt.
    • Fees: Different lenders charge different fees. The best-case scenario is finding one that charges no fees at all. If that’s not possible, consider the APR and fees that each lender charges to determine which loan will be most affordable in the long run.

    [ Read: What is a Good Credit Score? ]

    Apply for the loan

    Once you’re happy with the terms of the loan you’d like to apply for, it’s as simple as completing the information and pressing the submit key. Once you’ve submitted the application, this will show up as a hard inquiry on your credit report. If you’re still doing research, request a pre-qualification quote instead.

    Types of bad credit loans

    Payday loans 

    These loans come in handy when you’re in pinch a few days before payday. There are a few advantages to the loan, such as the high likelihood of approval and the fast turnaround. Some things to consider include the high APR and that the maximum loan amount might not be enough. These loans also need to be paid back pretty quickly, usually within a month or less.

    [ Read: The Best Payday Loan Alternatives ]

    Credit union loans

    Credit unions require you to join as a member. The advantage is that credit unions are usually small enough to have a better understanding of the unique circumstances their members face. This makes it easier to apply for a loan, even if you have bad credit.

    Secured personal loans

    A personal loan can be secured or unsecured. You may have to use an asset as security, such as money in a fixed term account, a car or a property that has equity (also see HELOCs for bad credit). Banks prefer this to unsecured loans for bad credit, as the risk is somewhat mitigated. For consumers, this option might result in them losing their assets if they’re unable to repay their loan.

    [ Read: Secured Personal Loans vs. Unsecured Personal Loans ]

    The best bad credit personal loans

    Best for highest maximum loan amount – Avant

    Avant may be the generous Uncle Scrooge we wish we had, but you’d have to have a good credit score to enjoy a low APR.

    APR Range
    9.95%–35.99%
    Loan Amount
    $2K–$35K
    Term
    24–60 months
    SimpleScore
    4 / 5.0
    close
    SimpleScore Avant 4
    Rates 2
    Loan Size 5
    Terms 5
    Support 5
    Fees 3

    This lender is the best option if you’re looking for a fat stack of cash without having to sell your granny’s vintage tea set to afford the APR. Avant is known for its fast service delivery and almost faster loan disbursements once loans are approved. It typically pays out within 24 hours. For applicants with low credit scores, however, the main perk to this lender is the high maximum loan amount and the comparatively low APR. Loan amounts range from $2,000 to $35,000, and APR ranges from 9.95%–35.99%. There is also an admin fee of up to 4.75%.

    Avant Disclosure

    The actual loan amount, term, and APR amount of loan that a customer qualifies for may vary based on credit determination and state law. Minimum loan amounts vary by state. Avant branded credit products are issued by WebBank, member FDIC.

    Best for co-applicants – OneMain Financial

    OneMain is that favorite granddad who forces you to come to his house to borrow a few dollars.

    APR Range
    18%–35.99%
    Term
    24–60 months
    Loan Amount
    $1,500–$20K
    SimpleScore
    4.4 / 5.0
    close
    SimpleScore OneMain Financial 4.4
    Rates 4
    Loan Size 5
    Terms 5
    Support 5
    Fees 3

    While OneMain throws a lifeline to those with bad credit scores by not capping its minimum score requirement, you will need to apply at your nearest branch. The application process is fast once processed and applicants can expect a disbursement within 24 hours of approval. OneMain offers loans up to $20,000 and with an APR range from 18.00%–35.99%.

    OneMain Financial Disclosure

    Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum APR is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. The lowest APR shown represents the 10% of loans with the most favorable APR. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes.

    Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.

    Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: Florida: $8,000. Iowa: $8,500. Maine: $7,000. Mississippi: $7,500. North Carolina: $7,500. New York: $20,000. Texas: $8,000. West Virginia: $7,500. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.

    Best credit builder – RISE Credit

    Start small and stay small or else you’ll have to dig deep in those pockets to cover the interest.

    APR Range
    50%–299%
    Term
    4–26 months
    Loan Amount
    $300-$5,000
    SimpleScore
    3 / 5.0
    close
    SimpleScore RISE Credit 3
    Rates 1
    Loan Size 4
    Terms 2
    Support 3
    Fees 5

    If you’re still stuck on the APR and wondering whether you misread that number, it’s okay. Read it again. While that rate might seem far fetched, it’s worth remembering that RISE doesn’t require applications to have a credit score, let alone a good one. That places them at a high risk of defaults which need to be mitigated somehow. The entire process is automated, and borrowers never have to set foot in one of its offices. This is the ideal product to start with when trying to build a credit score.

    Best speedy loans – OppLoans

    If you’re planning on using your personal loan for more than a small amount, expect to pay it back in spades.

    APR Range
    99%–160%
    Term
    Up to 3 years
    Loan Amount
    $500–$4k
    SimpleScore
    2.8 / 5.0
    close
    SimpleScore OppLoans 2.8
    Rates 2
    Loan Size 1
    Terms 3
    Support 5
    Fees 3

    There are few loans that are as fast to process as this one. OppLoans has a streamlined, no-fuss approach to lending that doesn’t require a great credit record. That said, the minute you get your score where you need it to be, it’s time to move on to a lender that does pay some attention to the score. That’s because the APR range is from 99%–160%. That’s also part of the reason why the terms are relatively short and loan amounts are super low.

    Best conventional lender alternative – Peerform

    This could just be your startup capital for that fledgling cupcake emporium, just like Max and Caroline in “Two Broke Girls.”

    APR Range
    5.99%–29.99%
    Term
    12–60 months
    Loan Amount
    $4K–$25K
    SimpleScore
    3.8 / 5.0
    close
    SimpleScore Peerform 3.8
    Rates 5
    Loan Size 5
    Terms 3
    Support 5
    Fees 1

    The APRs on these loans are quite reasonable, and that’s because you need a minimum FICO score of 600, plus a debt-to-income ratio of less than 40%, to qualify. There are other requirements too, but they seem to be a little less stringent than the other bad credit lenders. Peer-to-peer lending is great for those who want to apply online for a loan through an institution that is not a bank. The funding is done by investors who “fund” these loans. The repayments are similar to dividends earned through other investment products.

    Check Your Personal Loan Rates

    Answer a few questions to see which personal loans you pre-qualify for. It’s quick and easy, and it will not impact your credit score.

    Get Started

    with our trusted partners at Bankrate.com

    Benefits of bad credit loans

    • You can build or improve your credit score: By diligently keeping to the repayment agreement, your credit score should improve over time. Be sure to make payments on time, for the right amount and in the right frequency. For those building up their credit score for the first time, a small loan with a manageable installment is a good place to start.
    • You may improve your cash flow: The right bad credit loan might be a perfect substitute for smaller, higher-installment loans. By replacing the smaller ones with higher installments with a single installment, you can free up your cash flow. It’s important to check whether the new interest rate and repayment terms are worth it, as you may end up paying more in the long run.
    • Fast access to cash: While it may take up to a week or two for approval with some lenders, for the most part, these loans are approved and disbursed within a few days.

    Are bad credit personal loans worth it?

    • They’re expensive: It’s important to run the numbers and decide whether the APR charged is within your budget. When you have bad credit, the interest rate you’ll qualify for will be significantly higher than if you had a good credit score. Depending on the lender, you could end up paying more than 20% interest. And for the lenders with the highest rates on bad credit loans, you could pay in excess of 100% interest on your loan.
    • They are still loans: While it’s tempting to finally put a downpayment on that jet ski, it’s important to use debt wisely. It’s important to ask yourself whether a loan is really necessary. A personal loan might be wise if you’re consolidating high-interest debt and can get a better interest rate if you’re starting a business and expect to see a financial return. But loans are less advisable if you’re planning to use the money to fund a large purchase or event.
    • You might not be eligible: Lenders have a number of criteria that you need to satisfy before your loan is approved. Each lender will require a minimum credit score. Even lenders that offer personal loans to borrowers with bad credit will have a minimum score they’re willing to accept. You’ll also have to prove that you have stable and sufficient income to pay back the loan. Finally, lenders consider how much debt you already have and prefer not to lend to people with a high debt-to-income ratio. 
    • You may end up paying fees. Depending on your lender, you could end up with some substantial fees. Many lenders charge an origination fee when they write your loan. You can also expect to pay late fees for any monthly bills not paid by the due date. Finally, some lenders charge a prepayment penalty if you pay your loan off early. Some lenders don’t have any fees, but  are typically the lenders with higher credit score requirements.
    • You could hurt your credit even more. If you’re struggling with bad credit, chances are that you’ve already been in a situation where you couldn’t make your monthly payments. If you’re considering a personal loan, make absolutely certain you’ll be able to make your payments every month. Otherwise, you risk damaging your credit even more, which could make getting credit nearly impossible in the future.
    • There are alternatives available. Depending on what you need the money for, a personal loan may not be your only option. First, consider the interest rate you’re eligible for. While credit card rates are usually quite high, some personal loan rates are even higher. You may be better off using a credit card if the rate is better. You also might consider a secured loan, meaning you put up collateral that the lender can seize if you fail to make your payments. This option sounds risky, but secured loans generally have lower interest rates because the lender is taking on less risk.

    [ Read: Pros and Cons of Taking Out a Personal Loan ]

    What are the interest and fees on personal loans?

    Anytime you borrow money, you can expect to pay interest on your loan. Personal loans tend to have higher interest rates than other loans because they aren’t secured. In other words, there’s no collateral the lender can seize if you don’t make your payments. It’s a riskier move for the lender, and it passes that risk along to the borrower in the form of higher rates.

    And unfortunately for borrowers with bad credit, the best personal loan rates are reserved for people with excellent credit. If you have a low credit score, you’ll end up with a higher interest rate. The rates for some bad credit personal loan providers range from as low as 5.99% to as high as 299%.

    In addition to the interest, you also may pay fees on your loan. Common fees on personal loans include:

    • Origination fees: The fee you pay to the lender for writing the loan
    • Late fees: The fee you pay anytime you don’t make your payment by the due date
    • Prepayment penalties: The fee you pay if you pay off your loan early

    A handful of personal loan lenders don’t charge any fees at all, even late fees. But these lenders tend to have higher lending requirements, meaning someone with bad credit may not be able to get a loan from them.

    How to use a bad credit loan to improve your credit score

    Whether you’re building up your credit score for the first time or rebuilding your score after a tumultuous financial period, you can get a bad credit loan as a starting block to get that score up. For this to work, however, it needs to be managed right.

    [ Read: How to Raise Your Credit Score ]

    Start off by applying for an amount that’s low enough to manage, even in times where your income takes a knock. This ensures that even in tough months you will be able to honor your commitments.

    Opt for a term that’s not too long. Some offer loan terms as short as three months or as long as 72 months. It takes at least six months to see decent movement on a credit score, which means that the term should be long enough to build a decent repayment history.

    Bad credit personal loans FAQ

    A personal loan should be used to finance events and items that may be too expensive to finance through a credit card. These are usually once-off expenses, such as home renovations. While there are different ways to finance these expenses, a personal loan can have a more attractive term, interest rate or installment.

    Most lenders prefer a FICO score of 600 or higher. Some instances where the score might not play a factor at all is when borrowers are building their score up for the first time and have other payment references to strengthen their application.

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Last editorial update – 12/17/2020, updated bad credit personal loans buying guide and editorial advice.

    Methodology

    SimpleScore

    The SimpleScore is a proprietary scoring metric we use to objectively compare products and services at The Simple Dollar.

    For every review, our editorial team:

    • Identifies five measurable aspects to compare across each brand
    • Determines the rating criteria for each aspect score
    • Averages the five aspect scores to produce a single SimpleScore

    Here’s a breakdown of the five aspect scores and their rating criteria for our review of the best personal loans of 2020.

    Why do some brands have different SimpleScores on different pages?

    To ensure the SimpleScore is as helpful and accurate as possible, we developed unique criteria for every category we compare at The Simple Dollar. Since most brands offer a variety of financial solutions, their products and services will score differently depending on what we’re scoring on a given page.

    However, it’s also possible for the same product from the same brand to have multiple SimpleScores. For instance, if we compare NetCredit’s personal loans according to our criteria for the best personal loans, it scores a 2.3 out of 5. But when we compare NetCredit according to the criteria for the best bad credit personal loans, it scores considerably higher, since the criteria for the latter review are more lenient (lenders who serve borrowers with bad credit will always offer higher rates, so we needed to adjust our category methodology to account for different industry standards).

    Questions about our methodology?

    Email Hayley Armstrong at hayley@thesimpledollar.com.

    Rates

    We looked at the maximum APR for each lender — the lower their maximum rate, the higher their score.

    Loan Size

    We awarded higher scores to lenders with more generous loan sizes.

    Customer Satisfaction

    We leveraged the J.D. Power 2019 Personal Loan Satisfaction Study℠ to see how customers rated their experience with each lender. (If a lender wasn’t included in J.D. Power’s study, we skipped this aspect and averaged the four remaining aspect scores.)

    Support

    We awarded higher scores to lenders with the most channels for customer support.

    Fees

    We looked at the three most common fees — origination, late payment, and pre-payment — and penalized lenders for each fee charged.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Loans Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.