What is a bad credit personal loan?

Bad credit personal loans are simply personal loans designed for borrowers with bad credit scores. There are generally two types of bad credit loans: secured and unsecured.

1. Secured loans

Secured loans, also known as collateral loans, allow you to borrow money against the value of an asset. The most common types of secured loans include mortgages, auto loans, and home equity loans. Secured loans tend to offer more favorable terms, rates, and loan limits because the collateral incentivizes you to repay on time. A secured loan may be easier to get than an unsecured loan for those with bad credit.

But secured loans come with risks. Defaulting on the loan can lead to losing whatever you put up for collateral, including your house or car. Be sure to make timely payments if you go this route.

2. Unsecured loans

Most personal loans are unsecured, meaning they’re based mostly on your creditworthiness. If you have a fair or poor credit score, it may be more difficult to get an unsecured loan. Though you’ll have a higher interest rate and lower loan limit, you won’t risk losing an asset with a missed payment.

Related: Secured vs. Unsecured Personal Loans

What is considered a bad credit score?

On the FICO Score range of 300-850, a credit score below 669 is considered to be either fair or bad. Typically, lenders consider a score of 600 or below to be a bad score, which can make qualifying for a personal loan more difficult (though not impossible).

Factors that may give you bad credit include:

  • Making late payments
  • Collection accounts
  • Filing for bankruptcy
  • Defaulting on loans
  • Carrying a balance on credit cards
  • High utilization rate

Estimated APR by FICO score range

Personal loan interest rates can vary by lender, and also depend on factors like your credit score, credit history, annual income, existing debt, and more. However, here are estimated APRs by credit score as of May, 2022:

Credit Score Average APR
720 – 850 10.3% – 12.5%
690 – 719 13.5% – 15.5%
630 – 689 17.8% – 20.8%
300 – 629 26.1% – 32%

Do you qualify for a personal loan with bad credit?

Qualifying for a personal loan with a bad credit score can be more difficult, and some lenders may decline your application. However, it’s not impossible. Others, like online lenders, may be more flexible with credit score requirements. Keep in mind, though, that the lower your credit score is, the higher your interest rate will be, so the more you’ll end up paying over the life of the loan.

Depending on the lender and your score, you may also be able to qualify for a secured loan, or apply for a loan with a cosigner, and that can help you qualify. When researching and comparing lenders, be sure to check minimum credit score requirements before applying to help improve your chances of qualifying.

Where can I get a personal loan with bad credit?

So, you know you can still qualify for a personal loan even if you have bad credit. But keep in mind that your options may be more limited when it comes to lenders who will approve your application. An online lender may be your best option, but some in-person lenders may be able to help as well.

Online personal loans for bad credit

Many online lenders offer more flexible repayment terms, which can help make it easier to repay the loan. Some lenders that have personal loans for borrowers with bad credit include:

  • Upgrade (minimum score 569)
  • Upstart (no minimum score)
  • LendingPoint (minimum score 600)
  • OneMain Financial (no minimum score)
  • Avant (minimum score 550)

Check out lenders and solutions that will meet your needs

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5.94% - 35.97%

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$2,000 - $35,000

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2-5 years

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18% - 35.99%

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$1,500 - $20,000

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In-person lenders for bad credit personal loans

In-person lenders, like banks and credit unions, can be more difficult to qualify for if you have bad credit because they often have stricter qualifications.

You may be able to improve your chances at a bank if you are already a customer, because they can use your history as a customer to help support your ability to repay the loan. However, not all banks offer personal loans, and may require collateral if you have poor credit.

In order to get a personal loan from a credit union, you must belong to the credit union. They may look at other factors such as your income and existing debt and may be more likely than banks to accept loan applications with bad credit. They may even have other alternatives available.

Loans to avoid if possible

People with bad credit may find their loan options limited, but there are a few options to avoid at all costs.

1. Payday loans

Payday loans are short-term loans, usually $500 or less, and are generally due on your next payday. Payday lenders don’t check your credit reports, so this might seem like a good solution. But these loans typically carry very high interest rates that can lead to a vicious cycle of payday loan debt.

Sixteen states and the District of Columbia prohibit extremely high-cost payday loans.1

2. Title loans

Title loans require you to pledge the title of your car and can come attached with very high interest rates.

The risk: you can lose your car if you don’t repay the loan on time. One-in-five auto title loan borrowers have their vehicles repossessed after they’re unable to repay the loan in full.2

3. Pawn shop loans

With a pawn shop loan, you bring an item of value to a pawn shop in exchange for a small loan that’s of equal or lesser value than the item itself. To get the item back, you have to repay the loan before the end of the term. Term lengths can vary state by state.3

But there can still be expensive fees and interest involved. In a worst-case scenario, the shop can keep and sell the item if you don’t repay the loan.

Alternative types of loans for people with bad credit

If you’re having trouble qualifying for a traditional loan, these non-traditional loans can work.

1. Cash advances

Depending on who your employer is, you may be able to ask them for a short-term advance on your paycheck.

Or you can go right to your credit card company for a cash advance. Instead of making a purchase with your card, this option lets you withdraw some of your available credit as cash. This option generally comes with interest rates higher than your card’s standard purchase annual percentage rate (APR).

2. Visit a credit union

Credit unions may be able to offer a lower rate than other institutions, not to mention they offer more personalized service. The maximum APR a credit union can charge is 18% for loans. The exceptions are loans made under the National Credit Union Association’s Short-Term Loan program, which allows them to charge up to 28% APR.4

3. Bank agreements

Your bank may allow you to take out a short-term loan or make a minimal overdraft agreement. This is contingent upon your account being in good standing and your ability to keep the account open.

4. Home equity loans

Home equity loans are a type of second mortgage where you receive a lump sum of cash upfront. These loans have a fixed interest rate and fixed monthly payments. Because you’re borrowing against the value of your property, a home equity loan can be easier to get for those with bad credit.

Learn more: Home Equity Loans

5. HELOC

Home owners also have the option to take out a home equity line of credit, or HELOC. Instead of receiving a lump sum like a home equity loan, HELOCs function more like credit cards. HELOCs provide you with a line of credit based on the value of your home, so you can borrow what you need when you need it and repay the funds over time.

Learn more: Home Equity Line of Credit

How to choose the best loans for bad credit

As you’re doing research, there are a few factors to compare to ensure you’re getting the best loan for your situation.

  • Fees. Check what fees the lender may charge, such as application fees, origination fees, late fees, prepayment penalties, or annual fees. Not all lenders have fees, but they will add to the total amount you owe.
  • Minimum score requirements. Check to make sure your credit score will qualify. Most lenders have minimum score requirements, and if your score is lower than that, they will decline your application.
  • Interest rates. Check interest rate ranges. With poor credit, your interest rate will be high. If you can, get prequalified online to get an estimate of what your interest rate may be.
  • Repayment options. For example, can you pay by automatic withdrawal from a bank account? By credit card? By check? However you intend to repay the loan, ensure the lender allows this payment option.
  • Customer service. If you have poor credit, you may run into challenges repaying the loan. It is important for the lender to have great customer service reviews and ratings, because if you were ever to have questions or need assistance with payments, you want a lender who will work with you.
  • Loan options. Does the lender offer unsecured bad credit loans? Are the loans available only secured loans? Do you need to have a cosigner? Research what loan options are available to you.
  • Monthly payments. If you get prequalified, you can see an estimate of what your monthly payment would be based on your credit score, interest rate, and total loan amount. Make sure these payments are affordable.
  • Total loan amount. Not all lenders offer personal loans up to $100,000. Make sure the lender supplies loans in the amount you need.

How to get a loan with bad credit

Once you have narrowed down your lender options to one or two, there are a few additional considerations and steps to getting that loan:

1. Compare all loan features. In addition to those listed above, some loans offer other features such as fixed or variable interest rates, insurance protection, discounts, fast funding, or payment flexibility.

2. Calculate monthly payments. Know what monthly payment you can afford.

3. Look into secured loans. Even though secured loans require collateral, which you can lose if you do not repay the loan, you may be more likely to get approved for a secured loan vs. an unsecured loan.

4. Add a co-signer if necessary. A co-signer is obligated to repay any missing payments, and even the full amount of the loan, if the borrower does not pay. They are taking full responsibility (along with you) to repay the loan. Cosigners are typically a trusted friend or family member with a great credit score and history.

Related: Personal Loans With a Cosigner

5. Gather financial documents. When you apply for a loan, you may be asked to provide documents like proof of employment, proof of address, and proof of income. Gather these documents ahead of time to make the application easier.

6. Be prepared for a hard credit check. Once you submit the loan application, it will trigger a hard credit check, which will decrease your credit score by a few points. This will show on your credit report for two years, but your score will typically rebound after one year.

How to apply for a personal loan if you have bad credit

Getting a personal loan with bad credit takes a bit more effort than it would with better credit. But it’s still doable. Here is what you need to do to secure a loan despite having poor credit.

  • Check your credit report/score: The Fair Credit Reporting Act (FCRA) requires the three major credit reporting agencies (Equifax, Experian, and TransUnion) to provide you with a free copy of your credit report once a year if you request it. Before you even apply for a loan, see if there are ways to improve your credit score. This will not only increase your chances of securing a loan but also get yourself a lower interest rate.
  • Make sure you can repay the loan: This may seem obvious, but make sure that your income and budget can bear another monthly payment.
  • Compare bad credit personal loans: See which option makes the most sense for you. If you have a pre-existing relationship with a credit union or bank, that may be the best place to start—and always make sure to read the fine print.
  • Look into pre-qualification online: Pre-qualification is the easiest way to compare many online lenders. Many lenders let you do this without running a hard credit check. This gives you the luxury of shopping around without further hurting your credit score.
  • Apply for a loan: This can take anywhere from a business day to a week and will trigger a hard credit inquiry, which can temporarily drop your credit score. Over time, with consistent payments, your score will recover.

How to manage your personal loan

To avoid digging a deeper hole, it’s important to have a repayment plan for a personal loan, as you would with any other loan.

  • Keep your budget up-to-date: Add any additional debt to your existing budget. If you don’t have one, create one by breaking down your income into costs that make sense for you.
  • Set up autopay: Automatic payments ensure that you won’t miss a payment. An added benefit: your lender may offer a discount for setting up autopay.
  • Stay in contact with the lender: If you suffer an unexpected life event, let your lender know immediately if you expect to fall behind on payments. In the interim, you may be able to work out an agreement to defer payments, waive late fees, etc.

Avoiding bad credit loan scams

These are all red flags that a lender is running a scam:

  • Guarantees without approval. Reputable lenders will want to see information like your credit score, credit history, other debts, income, and more before approving your application. Lenders who say they will guarantee approval but do not investigate this information can be a scam.
  • Not registered in your state. The Federal Trade Commission (FTC) requires that all lenders be registered in the state(s) where they do business. You can find this information on the lender’s website, or through the FTC. If you suspect a scam, find out if they are registered in your state.
  • Uses poor advertising methods. Legitimate lenders will not call you on the phone or come to your door to solicit your business. Lenders who do this may be frauds. Also avoid the lender if their advertising says anything about getting approved immediately, or you must act immediately to get the best deal.
  • Pre-payment upfront. Some lenders do charge application or origination fees, but typically these are deducted from the total amount of your loan. If a lender is asking you to pay cash or provide credit card information up front, do not do this – it is likely a scam.
  • Unsecured website. When you look at the lender’s web URL, it should begin with “https” and have a padlock symbol on any page where you are asked to provide personal information. This means the website is secure, and your information is protected. Sites without this are not legitimate.
  • No physical address. All lenders must list a physical address on their website, so if a lender doesn’t have one, this should be a red flag.

FAQs

Interest rates vary based on the type of loan, the lender, and your credit history. Generally speaking, the better your credit score, the lower your interest rate will be. The worse your credit score, the higher your interest rate will be.

It’s not as easy to get a personal loan with bad credit, but it’s not impossible. Many lenders, especially those online, will work with borrowers with fair to poor credit. While your interest rate will be higher, and you may only qualify for a secured loan or a loan with a cosigner, there are options. Do your research carefully to compare lenders who have the best options for you.

While personal loan amounts can be up to $100,000 depending on the lender, borrowers with bad credit likely won’t qualify for that much of a loan. Typically, personal loans for bad credit range from less than $1,000 to $50,000 or less.

If you have time and can improve your credit score before applying for a personal loan, this may be your best chance of getting better interest rates and repayment terms. Start by making all of your debt payments on time each month. If you have credit card debt, start paying that down and if possible, pay off your balance in full each month. Lower your credit utilization rate and decrease your debt-to-income ratio. Do this by paying off your debts and increasing your income.

Related: How to Build Credit and Improve Your Credit Score

If a lender tells you they can provide a loan without checking your credit score, it’s likely a scam. While you can get prequalified without a hard credit check, and it does not affect your score, you can’t apply and get a loan without a credit check.

The biggest risk with a bad credit loan is if you have a secured loan and don’t make the payments, you can lose the assets you offered as collateral. If you default on the loan, it could be sent to collections. Plus, late or missed payments, or a loan sent to collections, can significantly impact your credit score.