When choosing a lender, you’ll want to look at several factors beyond the credit score requirement. The best lenders have transparent pricing, including interest rates and fees, quick funding and approval times, a variety of repayment terms, and loans that can be used for a variety of purposes.
What Are Loans for Bad Credit?
Bad credit loans are loans for individuals with low credit scores, usually 579 or less.
Although there are many types, the most common are unsecured personal loans. There’s no collateral, you’ll have a fixed interest rate and fixed monthly payments and, like other loans, these will show up on your credit reports and affect your credit score.
Unsecured personal loans for bad credit are just like any other unsecured personal loan, but they typically come with more fees and higher APRs than loans extended to people with better credit.
Do You Qualify for a Personal Loan for Bad Credit?
To qualify for a personal loan with bad credit, you’ll likely need to meet certain criteria. Some of the most important factors are:
Your current credit history shows your problems are resolved: Lenders are more willing to overlook a bad credit score if your current credit history shows you’ve fixed the problems. This usually means that you don’t have any currently delinquent debt, any judgments are paid (e.g., tax liens), and bankruptcies are resolved. The goal is to ensure your old issues won’t prohibit you from repaying the new loan.
You have enough income to comfortably repay the debt: Before you can get a new loan, most lenders will want to make sure you have enough income to repay it. They’ll determine this by looking at your debt-to-income ratio. It’s also a good idea to review your budget to see if you can comfortably make the monthly payment before you proceed.
Loan funds will help improve your overall financial situation: The other thing that lenders consider is whether the loan may help improve your credit. For example, getting a loan to consolidate existing debt into a single fixed-rate loan with a lower interest rate could improve your credit and help you pay off your balance quicker. Plus, you’ll save money on interest charges.
Comparing Personal Loan Lenders for Bad Credit
When shopping for a personal loan for bad credit, these are the most important things to consider when comparing lenders:
APR range: Loans come at a cost, which includes the interest rate and any fees, like origination fees. The yearly cost of a loan is reflected in its APR, or annual percentage rate. This means it’s typically more important to evaluate the APR than the interest rate or origination fee when comparing personal loan lenders.
Loan amounts: Make sure the lender you choose offers a loan amount that’s big or small enough for your needs. Some lenders only offer loans of $5,000 or more, which could be a problem if you only need $500. In contrast, if you have a lot of debt to consolidate, you may need a lender that offers bigger loans.
Repayment term length: In addition to the APR, the next biggest factor affecting the size of your loan payment is the repayment term. You’ll have the lowest overall borrowing costs if you choose the shortest possible repayment term since you’ll pay less interest over the life of the loan. However, this results in a larger monthly payment. Be sure to select a lender offering a repayment term that works with your budget and needs.
Ease of application: Many lenders offer online applications that take mere minutes to complete, and let you know if you pre-qualify without hurting your credit.
Funding speed: If you want to get your money fast, look for a lender with next-day funding (some even offer same-day funding). But take note that funding times aren’t guaranteed, and will depend in part on your own bank.
Lender’s reputation: Make sure the lender you choose has a good reputation. Check consumer review sites for customer feedback, and look at government sources like the Consumer Financial Protection Bureau’s Consumer Complaint Database. Doing your due diligence will help you choose a reputable lender.
Is It Easy to Get a Personal Loan with Bad Credit?
Getting a loan with bad credit tends to be harder than getting a loan with excellent credit, but there are still many lenders offering bad credit loans. Even if you have bad credit, it could be relatively easy to get a personal loan as long as you can afford the payment and you’re not currently delinquent on your existing debt.
However, if you have active credit issues, like delinquent loans or accounts in collections, you may need to work on getting these problems fixed before you can qualify for a personal loan. There are many places you can go to get help resolving credit issues; credit counseling is a good place to start.
What Are the Types of Loans for Bad Credit?
The most common types of loans and similar products for bad credit include:
Unsecured loans: Lenders offering unsecured personal loans for bad credit include banks, credit unions, and alternative online lenders. You won’t need to provide any collateral (e.g., your car or home), and the repayment terms are usually two to seven years.
Secured loans: There are many kinds of secured loans for bad credit, including mortgages, auto loans, home equity loans, and home equity lines of credit. A secured loan is appropriate if you’ll use the money to buy a car or a house, or if you want to repair or improve your home.
Credit cards: Quite a few banks provide credit cards for bad credit, and some offer features to help you rebuild your credit. Although credit cards are useful and secure payment options, and they can help improve your credit if you use them responsibly, the APR is usually very high. Make sure you do your best to repay the balance as quickly as possible to avoid high borrowing costs.
Cash advances: Many credit card issuers offer cash advances, and banks and alternative online lenders also sometimes offer short-term cash advance loans. But cash advances are more expensive than secured or unsecured personal loans and often carry very high interest rates, so we recommend avoiding them.
Payday loans: Although they’re easily available, keep in mind that payday loans come with extremely high interest rates. They’re risky debts that are difficult to repay, and it’s easy to get caught up in a cycle of repeatedly using payday loans. For these reasons, it’s best to avoid payday loans completely and seek another funding option.
What Interest Rate Can I Expect If I Have Bad Credit?
When you have a FICO score under 670, you’re considered a subprime borrower. If your FICO score is less than 580, your credit falls into the “Poor” range.
Every lender sets its own criteria (including credit score thresholds) for loan approval and pricing. That makes it difficult to predict precisely what APR you’ll be offered for a personal loan if you have bad credit. Interest rates on personal loans can range from roughly 4.99% to 36%. If your credit rating is poor, you’ll probably be offered rates on the higher end of that scale.
Where Can I Get a Personal Loan with Bad Credit?
Getting a personal loan with bad credit can be a challenge. Still, you may find multiple lenders willing to do business with you (albeit at a higher interest rate than if you had good credit). There are two primary loan sources to consider:
Online personal loans: Online lending networks take your loan application and connect you with lenders who may be willing to approve you for a personal loan. You can often submit one initial form and compare offers from multiple lenders.
Direct lenders: Direct personal loans come straight from the financial institution where you’re approved. These may include local banks and credit unions, online banks, and online direct lenders. If you have bad credit, it’s generally best to apply only with direct lenders that are willing to do business with credit-challenged borrowers.
Local lenders. If you use a local bank branch or credit union, you might be able to find a loan officer willing to work with you. Your personal relationship could influence the criteria they use to assess your application, including not factoring in your credit score as heavily. They might also offer you better terms, interest rates, and lower fees even if you have bad credit.
Can I Get a Personal Loan with Guaranteed Approval?
While there are no guarantees you’ll get approved for a personal loan, especially if you have bad credit, there are a few steps you can take to increase your odds.
First, pick a lender that’s friendlier towards borrowers with bad credit (and if you don’t know your credit score, you can check it for free). If your score is low, you can work to improve it before getting a loan, but if you need funding immediately, try to find a co-signer who has good credit. A co-signer is someone who promises to pay back the loan if you can’t, and it might make you less of a risk in the eyes of the lender.
And finally, consider applying with multiple lenders. The more lenders you try, the greater chance you have of finding one who’ll approve you. Just make sure they do a soft rather than a hard credit check as the latter may decrease your credit score even more.