Bad credit doesn’t have to stop you from getting a personal loan, but you might have to do a bit more shopping around to find an offer that fits your budget.
Comparison shopping can help you avoid scams as well as high-interest rates that can make it difficult to stay out of debt.
How to Apply For a Bad Credit Loan
The loan application process is the same regardless of your credit score. On the other hand, having bad credit will almost certainly limit your options when it comes to picking and choosing a personal loan.
To increase your chances of getting approved—and to reduce the frustrations of getting rejected—it helps to go into the application process as prepared as possible.
This means you should definitely do your homework by researching which lenders offer loans to people with credit scores similar to yours. You should also gather all your financial information so you have it handy when you apply.
Having relevant financial and personal documentation on hand can speed up the loan application process and help you determine if it’s worth applying with a particular lender. At a minimum, you should gather copies of the following:
- Proof of income – In many cases, lenders will want to see your most recent W2 or a pay stub from your employer.
- Tax returns – Lender requirements vary, but it’s a good idea to gather your income tax returns for at least the past two years.
- Child support or spousal support information – If you pay child support or receive it, the lender might want to see copies of the support order from the court or the administrative agency that handles the support obligation. The same is true for spousal support, which is called alimony in some states.
- Car information – If you’re applying for an auto loan, the lender will want to know the make, model, and manufacture year of the vehicle. The lender will also probably want to know the vehicle identification number (VIN).
- Retirement account information – The lender might ask for copies of any retirement accounts or pensions you own.
- Documentation of past bankruptcies or credit problems – If your bad credit was caused by a bankruptcy or some other money management issue, you should be prepared to provide documentation or an explanation.
If you have bad credit, you can increase your chances of getting approved for a personal loan if you can show lenders that you’ve put your credit mistakes behind you.
For example, maybe you misused credit cards as a college student, but you’ve worked hard to change your spending habits since graduation. Or maybe you suffered an unexpected job loss that made you fall behind on your bills.
Whatever the reason, you want to be able to show lenders that you’re trustworthy and that you won’t repeat past mistakes.
Compare the Best Loans for Bad Credit
Ideally, you would work hard to rehabilitate your credit score prior to taking out a personal loan. If you need a personal loan right away, however, you probably don’t have time to wait for your score to improve.
Fortunately, there are still reputable lenders willing to work with people who have less than perfect credit. Lenders know that emergencies can happen and that people can make mistakes.
On the other hand, having bad credit can make you vulnerable to predatory lenders that target people with low credit scores. If you’re in the market for a personal loan, it’s important to be wary of scams and predatory lending practices.
You can protect yourself by shopping around. By comparing lenders side by side, you can assess the pros and cons of each offer before you apply.
What Type of Bad Credit Loan Do I Need?
There are several types of personal loans. Before you apply, it’s important to understand what’s available and which type of loan is best suited for your needs.
Unsecured vs. Secured Personal Loans
In general, personal loans can be broken down into two main types: unsecured and secured. An unsecured loan doesn’t require the borrower to put forth any collateral, which is a thing of value the lender can take back in the event the borrower defaults on the loan.
By contrast, a secured loan is guaranteed by collateral, which gives the lender something to seize in case the borrower stops paying. For example, an auto loan is secured by the vehicle because the lender can take the vehicle if the borrower fails to make their car payment.
Similarly, a mortgage is a secured loan, as the house serves as the collateral. If the homeowner fails to make their mortgage payment, the lender can force the home into foreclosure to recoup its money.
Installment loans can include both unsecured and secured personal loans. With an installment loan, the lender gives the borrower a lump sum of money upfront and the borrower pays it back with interest over a set number of installments.
Two of the most common installment loans are mortgage loans and auto loans, which are both secured with collateral.
If you’re not buying a car or a house, however, you may be able to take out a personal installment loan without collateral.
In some cases, people with bad credit turn to payday loans when they need a loan fast. These are typically short-term loans for a relatively small sum of money compared to other types of personal loans.
The problem with payday loans is that the interest rates are usually quite high. Unfortunately, many payday lenders engage in predatory lending that puts borrowers at risk of defaulting and getting trapped in a cycle of debt.
Auto Title Loans
Auto title loans are sometimes popular among people with bad credit, as the lenders behind these types of loans typically don’t require a credit check.
However, title loans generally come with predatory interest rates. Worse, borrowers must sign over their car’s title to the lender as a condition of receiving the loan funds.
If the borrower defaults on the loan, the lender can take ownership of the vehicle, leaving the borrower without transportation. This is why it’s best to avoid auto title loans altogether.
What Does It Mean to Have Bad Credit?
In most cases, “bad credit” refers to a low credit score. However, it can also mean a lack of credit history.
An individual’s credit score can be low for a variety of reasons, including paying bills late or missing payments. Credit scores can also take a hit when a person runs up too many credit card bills or has little variation in the types of credit they use.
While a low credit score can make it difficult to qualify for a personal loan, a lack of credit history can also pose a challenge when it comes to getting a loan. If you’re new to the world of credit, it’s hard for lenders to determine what kind of risk you pose.
Whether you have a low credit score or little to no credit history, you’ll probably have to shop around to find a lender willing to work with you.
What FICO Score Range Is Considered Bad Credit?
The FICO score is one of several types of credit scoring models. However, it’s used by more than 90 percent of lenders, so it’s a good one to look at if you’re trying to determine your creditworthiness.
All FICO scores are made up of three digits that range from 300 on the low end and go all the way up to 850 on the high end.
|FICO Score Range||Rating||What It Means|
|<580||Poor||A well below average score. These borrowers pose the highest risk to lenders.|
|580 to 669||Fair||Below average, but some lenders may work with these borrowers.|
|670 to 739||Good||An average or slightly above-average score.|
|740 to 799||Very Good||An above-average score. Lenders view these borrowers as trustworthy and dependable.|
|800+||Exceptional||A score that is well above average. These borrowers can expect to receive the best rates and conditions when they take out a loan.|
A FICO score in the “poor” range is anything between 300 and 579, whereas a “fair” score is anything between 580 and 669. Scores that fall in these ranges are generally considered bad credit scores.
However, just because your score falls in the poor or fair range doesn’t mean you’re out of luck when it comes to personal loans. The higher your score, the better your chances of getting approved for a loan.
Also, there are plenty of lenders that work specifically with people who have experienced credit setbacks. If you’re committed to using credit responsibly, you still have a decent chance of getting the loan you need.
How to Get Approved for a Personal Loan with Bad Credit
Getting approved for a personal loan with bad credit can be done—especially if you go into the process well-prepared and educated about your options.
If you’re looking to take out a personal loan but you’re worried about bad credit holding you back, here are three steps to consider.
1. Check Your Credit Score and Credit Report
Before you contact any lenders, know your credit score and get a copy of your credit report. There’s no point in applying for a personal loan if you don’t know where you stand.
Your credit score will determine what kind of interest rates you pay, so it’s crucial to know what kind of score you’re dealing with.
Fortunately, you can get your score for free by signing up for the Discover Scorecard. This is a free service offered by Discover, but you do have to be a Discover cardholder to get access to your credit score.
Next, you should get a copy of your credit report. Under federal law, you’re entitled to receive a free report from all three major credit bureaus once every 12 months.
You can get your free credit report by going to www.annualcreditreport.com. Once you have your credit report, you should review it thoroughly, looking for any mistakes or inaccurate information.
If you spot an error, you should dispute it with the credit bureaus and the creditor. It’s important to follow through on disputing errors on your credit report, as even a couple of inaccuracies can drag down your credit score.
2. Shop Around
If you have bad credit, you should be prepared to dig a bit deeper to find a good deal. Keep in mind that you’re probably not going to qualify for the very best interest rates, and you may need to broaden your search before you find a lender that offers terms and conditions you can live with.
For many people, it helps to keep a spreadsheet or similar tool so you can see various lenders’ terms and rates side by side. You can even go low-tech and jot down information on a sheet of paper.
However you do it, take the time to gather as much information as possible. Depending on how much money you want to borrow, this is a big financial decision, so it’s important to be thorough and cautious.
3. Be Wary of Scams
Unfortunately, bad credit can mean dodging predatory lenders. If you find a lender that seems to offer a good deal, make sure you do your homework before submitting an application or signing a loan agreement.
You can investigate lenders by checking the website of the attorney general for your state. You might also be able to find information by running a search on the Better Business Bureau website or the site for the Consumer Financial Protection Bureau.
The Best Secured Bad Credit Loans
If you have bad credit, you might have a better chance of getting approved for a secured personal loan rather than an unsecured loan. This is because a secured loan requires you to put up collateral, making the loan less of a risk for the lender.
Generally, the interest rates for secured personal loans are lower than those for unsecured loans. Here are two of the best secured bad credit loans to consider.
1. One Main Financial
One Main Financial offers a variety of personal loans, including auto loans and secured loans. Depending on their creditworthiness, borrowers can get a loan for anywhere between $1,500 and $20,000.
One of the things that makes One Main Financial a top choice is that it offers lower interest rates when you take out a secured loan instead of an unsecured loan.
There is no minimum credit score to apply, nor is there a minimum annual income requirement. Borrowers can choose a repayment term of 24, 36, 48, or 60 months.
One Main Financial’s loan origination fees vary by state. Interest rates start at 18.00% and go up to 35.99%.
2. TD Bank
TD Bank offers both unsecured and secured personal loans, as well as a range of other financial products. The interest rate for a secured loan starts at a variable 5.67% and won’t go any higher than 18%.
While TD Bank lets you borrow as much as $50,000, which is higher than many lenders, it won’t let you borrow anything less than $5,000, which might deter people who don’t want to borrow that much.
Loan repayment terms with TD Bank range from 12 to 60 months. There is also a $50 loan origination fee — a reasonable amount when you consider that most lenders charge a percentage of the amount borrowed.
No Prepayment Penalty Loans for Bad Credit
In some cases, lenders charge a fee if a borrower pays off their loan ahead of schedule. This fee is known as a prepayment penalty, and it can appear on secured or unsecured loans, including auto loans and mortgages.
Not all loans come with a prepayment penalty, however, some lenders include them because they don’t want to miss out on the interest they receive when a loan stretches out over its full term. If a borrower pays off their loan ahead of schedule, the lender can’t collect that interest.
While you might not be too concerned about a prepayment penalty, it’s worth trying to find a loan without one. Consider what might happen if you suddenly inherit a large sum of money, or you get a promotion at work that comes with a significant bump in your salary.
If you’re interested in a personal loan that doesn’t charge a prepayment penalty, here are two lenders to keep in mind.
Avant is known for working with people who have less than stellar credit. Those who qualify can borrow as much as $35,000 with no prepayment penalty.
Depending on their credit score and other factors, borrowers can get an interest rate as low as 9.95%. Avant’s loans come with an administration fee, but this is capped at 4.75%.
Despite the possibility of a low annual percentage rate (APR), Avant’s interest rates can go as high as 35.99%. However, this is comparable to other lenders who work with people with bad credit.
If you borrow with Avant, you can choose a repayment term ranging between 24 and 60 months, depending on your eligibility. Avant also has a mobile app, so you can keep track of your account and pay your bill on the go.
Another advantage of working with Avant is that most borrowers can get their money as soon as the next business day after their loan is approved. Avant also does a soft credit inquiry when you check your eligibility online, so you don’t have to worry about a hard inquiry hurting your credit score.
2. Lending Point
In addition to not charging prepayment penalties, Lending Point is a lender known to work with people who have recently filed for bankruptcy. If your bankruptcy was discharged at least 12 months ago, you may be able to get a personal loan from Lending Point.
Eligible borrowers can get interest rates ranging between 15.49% and 35.99%. Lending Point customers can borrow as little as $2,000 and as much as $25,000.
On the downside, Lending Point charges a loan origination fee that can be as high as 6%. Repayment terms are also somewhat limited, ranging between 24 and 48 months.
Unlike a lot of other lenders, Lending Point is upfront about its credit score requirements. On its website, it states explicitly that it works with borrowers with FICO scores as low as 585.
Lending Point doesn’t service borrowers who live in West Virginia, but it works with borrowers in the 49 other states plus the District of Columbia.
The Best Unsecured Loans for Someone with Bad Credit
In some cases, you might need a personal loan that doesn’t involve collateral. In this case, you’ll want to look for an unsecured loan.
When you take out an unsecured personal loan with bad credit, you should expect to pay a higher interest rate than you would for a secured loan. To avoid biting off more than you can chew when it comes to interest and debt, you should only borrow when you truly need an infusion of cash.
There are many reasons why someone might want an unsecured personal loan. Common uses for this type of loan include debt consolidation, wedding expenses, and home improvement projects.
If you’re looking for an unsecured personal loan and you have bad credit, here are two lenders to add to your list.
Prosper requires a credit score around the 640 range, so it’s probably not a good option if your credit score is truly bad. However, Prosper works with borrowers whose scores fall into the fair-to-bad credit brackets, so it’s worth checking them out if your credit score is in this range.
If you borrow with Prosper, you can choose a repayment term of three years or five years, which is a bit more limited compared to terms offered by other lenders. The interest rate for an unsecured personal loan from Prosper starts at 7.59% but can be as high as 35.99%.
Like other lenders, Prosper puts limits on how little or how much you can borrow. To get an unsecured personal loan, you must borrow at least $4,000, and loan amounts are capped at $40,000.
On the plus side, Prosper doesn’t charge a prepayment penalty if you choose to pay off your loan early. Prosper also allows you to change your payment date to something more convenient for your budget.
CashUSA is a loan aggregator, which means it matches borrowers with potential lenders that participate in its network. If you have bad credit, you can fill out a basic application with your information and CashUSA will return results from lenders willing to work with you.
Lenders in the CashUSA network allow borrowers to take out a loan for as little as $500. Maximum loan amounts are $10,000, which is relatively low compared to other lenders.
The APR for personal loans in the CashUSA network varies by lender. For example, the lowest available APR is around 5.99%, and the highest interest rate is 35.99%.
Loan repayment terms also vary by lender. According to the CashUSA website, repayment terms can be as short as 90 days and as long as 72 months.
The Best Way to Consolidate Credit Card Debt with Bad Credit
If you have a lot of credit card debt, you might want to consider consolidating it. This can help you reduce your overall interest and eliminate the hassle of keeping track of several different payment due dates.
Streamlining the repayment process is an attractive prospect to many people. When you can make a single payment each month, you’re less likely to fall behind on your bills and create more financial headaches for yourself.
If you’re interested in consolidating your credit card debt, there are generally two ways to do it: a credit card balance transfer or a personal loan.
Credit Card Balance Transfers
Credit card balance transfers can be a good option, but they’re not always the best route for someone who has struggled with bad credit in the past. There are a couple of reasons for this.
First, the best credit cards for a balance transfer are those with a 0% APR. However, these types of cards are designed specifically for balance transfers, and the APR is an introductory rate.
In most cases, the 0% interest rate is only good for one year. After the year has passed, the interest rate increases significantly.
If you need to consolidate several credit cards, shifting your debt to a balance transfer card probably won’t help unless you’re certain you can pay off the full balance while the card’s interest rate is still 0%. If you fail to achieve this goal, you can get stuck with an interest rate that’s even higher than what you were paying before.
The other main option for consolidating credit card debt is a personal loan. In most cases, this will be an installment loan that you pay back over time.
In fact, you can find lenders that cater to people who wish to consolidate their credit cards. For example, Payoff is an online lender that helps people get rid of high-interest credit cards by rolling their balances into a single loan.
Payoff offers fixed interest rates ranging between 5.65% and 22.59%. The minimum loan amount is $5,000, and borrowers can borrow up to $35,000.
The Best Installment Loans for Someone with Bad Credit
An installment loan is simply a loan that you pay off in payments made over time. Typically, these payments are due once a month.
If you’re looking for the best installment loans for someone with a bad credit score, here are two possibilities to consider.
Upstart is an online-only lender that offers installment loans from $1,000 to $50,000. There are no prepayment penalties, and interest rates range from 7% to 35.99%.
According to Upstart, 99% of borrowers receive their loan funds within one day of submitting their loan paperwork. And because Upstart considers your job history and education as well as your credit score when making a lending decision, even borrowers with bad credit can qualify.
On the downside, Upstart’s loan origination fees can climb as high as 8%. However, you might pay less depending on your creditworthiness.
In business since 1998, Bad Credit Loans serves borrowers whose credit scores might stop them from qualifying for an installment loan from a different lender. As a loan aggregator, Bad Credit Loans matches potential borrowers with lenders willing to give someone with bad credit a chance.
Because Bad Credit Loans is a loan aggregator and not a direct lender, the interest rates and repayment terms will vary from lender to lender. However, Bad Credit Loans does set minimum loan amounts at $500 and maximum amounts at $5,000.
Getting a Mortgage With Bad Credit
If you have bad credit, you may think it’s impossible to get approved for a mortgage. However, this isn’t necessarily accurate.
Lenders that offer home loans tend to look at a variety of factors when making a lending decision, and your credit score is just one of these factors. In addition to your credit score, prospective lenders will consider your income, your debt-to-income ratio, your job history, and the size of your down payment.
While your credit score might be poor, you can usually overcome it as long as your numbers are good in other areas. For example, if you’re a high salary earner or have a large down payment, banks might be willing to overlook your bad credit score — or at least cut you some slack in that area.
Getting an Auto Loan with Bad Credit
After a house, a car is typically one of the bigger purchases anyone can make. Since most people can’t afford to simply buy a vehicle outright, it’s usually necessary to take out an auto loan.
If you have bad credit, however, you might struggle to find a lender willing to approve you. As with a mortgage, there are ways to improve your chances of getting the car loan you need.
For example, you can make yourself more attractive to lenders if you come up with a larger down payment. This reduces the risk for the bank, and it helps you avoid paying additional interest.
If you can’t afford a larger down payment, consider trading in your existing vehicle. Many auto loan lenders will accept a trade-in as a form of down payment.
What Loans Should Someone with Bad Credit Avoid?
Having bad credit can make you a target for scams and lenders that charge outrageously high-interest rates. If you have bad credit, there are certain types of loans you should do your best to avoid.
Payday loans are short-term personal loans that generally don’t require the borrower to put up any form of collateral. While they are banned in some states, payday loans are still legal in the majority of states in the U.S.
However, they are known for having exceptionally high-interest rates that can quickly trap borrowers in a cycle of debt.
In most cases, a borrower gets a payday loan by postdating a check for the amount they’re borrowing plus interest. The payday lender may also require the borrower to authorize an electronic funds transfer directly from their bank account on the day the loan payment is due.
Because the interest rates with these types of loans are usually so high, some borrowers can’t afford to pay them back. This can cause the borrower to take out another loan, creating a cycle of ever-increasing interest and debt.
Auto Title Loans
Auto title loans are another type of high-interest loan that’s best avoided. With this kind of loan, the borrower hands over their car title to the lender in exchange for receiving a loan amount based on a percentage of their vehicle’s value.
While the loan is pending, the borrower retains possession of their vehicle. At the same time, however, the title stays with the lender.
Because auto title loans typically come with high-interest rates, not everyone can afford to repay them on time. If a borrower falls far enough behind, the lender can eventually seize the vehicle and sell it to recover the loan amount.
Best Loans for Bad Credit FAQs
Here are some of the most frequently asked questions and answers regarding the best loans for people with bad credit.
How Can I Fix My Bad Credit to Get Approved for a Better Loan?
If you have bad credit, there are several things you can do to improve your credit score and increase your chances of qualifying for a personal loan with good terms and rates.
- Reduce your debt – Your credit utilization accounts for 30% of your credit score. This is the ratio of how much credit you’re using compared to how much total available credit you have. Generally, you should aim to keep your credit utilization below 30%. You can improve your ratio by paying off some of your debt.
- Always pay your bills on time – There are five factors responsible for your credit score. Your payment history is the most important, accounting for 35% of your score. Unfortunately, just one or two late payments can hurt your credit score for a long time. You can improve your score by ensuring you’re never late on a payment.
- Don’t close old credit cards – Sometimes, people think they’re helping their credit score by paying off a credit card and closing or canceling it. While paying off your cards is a good thing, you should almost always avoid closing them. By closing or canceling your old credit cards, you deprive yourself of credit history, which can hurt your credit score. The only time you should consider closing an old card is if it comes with an annual fee.
- Become an authorized user – If bad credit is holding you back, you can try piggybacking on someone else’s good credit. If you know someone, such as a spouse or relative, with good credit, consider asking them to add you to their credit card as an authorized user. If you go this route, just make sure the credit card company reports authorized user activity to the three major credit bureaus. That way, you’ll get credit for the on-time payments posted to the account.
Is Collateral Required to Get a Bad Credit Personal Loan?
Each lender has its own rules for approving a personal loan. Generally, however, you only need collateral if you’re taking out a secured personal loan.
Secured loans are loans like mortgages and auto loans. If you don’t want to pledge any collateral, you should look for lenders that offer unsecured personal loans to people with bad credit.
Can I Take Out an Unsecured Loan with Bad Credit?
It may be possible for someone with bad credit to get an unsecured personal loan, but the interest rate will almost certainly be higher than the interest rate for a secured loan.
Can I Get Approved for a Loan If I’m Unemployed?
Lenders almost always want to know a borrower’s employment status before making a lending decision. By asking about a person’s job status and income, they get an idea of whether the person is financially stable enough to repay the loan and keep up with the monthly payments.
However, it may still be possible for someone who’s unemployed to qualify for a personal loan. If you have other sources of income, you can use these to repay your loan.
For example, if you receive government benefits like disability or Social Security, this might be enough to qualify for a loan. Your lender may also ask about child support or spousal support.
Bad credit can make it more difficult to qualify for a personal loan, but it’s usually possible to find reputable lenders willing to give you a second chance. Rather than turning to predatory lenders that charge high-interest rates, take time to comparison shop before you commit to a loan.