How Can I Get a Loan With Bad Credit? Top Options To Know

Many borrowers with bad credit can qualify for loans from specialized lenders and fintechs. While you should expect high rates and unfavorable terms, bad-credit loans can help you rebuild your financial profile by establishing a steady history of on-time payments.

The following platforms offer traditional personal loans, credit lines and payday advances to poor-credit borrowers who might be rejected by traditional lenders.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

Quick Take

Getting a loan with bad credit is possible, but expect higher rates or fees.

• Payday loans: Best for no credit check required. However, they come with very high rates or fees and require full repayment with your next paycheck.

• Installment loans: Best for paying back over time. Generally requires a credit check. Expect interest rates of up to 36% or higher for borrowers with bad credit.

• Secured loans: Best for those with a co-signer who has good credit. Require a credit check and collateral, but allow installment payments. Interest rates may be lower than for unsecured installment loans.

What Counts as Bad Credit?

Bad credit is indicated by a lower credit score. According to FICO, a poor score is one below 580.

Factors that lead to a poor credit score include the following:

• Late or missed payments: About 35% of your score

• High credit utilization: About 30% of your score

• Bankruptcy: Major negative mark on your credit report

• Charge-offs: Result from 120 to 180 days of nonpayment

Borrowers with bad credit will have fewer loan or credit options, lower approval rates and less favorable loan or credit terms.

Loan Options for Bad Credit

• Personal loan: Offers a lump sum that can be used for a variety of purposes and is paid back in installments.

• Line of credit: Allows borrowers to draw funds when needed up to a set amount during the “draw period,” such as 5 years. Once the draw period ends, the borrowed amount is repaid in installments.

• Payday loan: Short-term, high-interest loan that’s typically repaid on the borrower’s next payday.

• Cash advance: Small, short-term advance from an app that’s based on income and banking activity, typically repaid with the borrower’s next paycheck. Monthly subscription fees or transfer fees may apply.

Lenders That Offer Loans for Bad Credit

These lenders may offer loan options for borrowers with bad credit:

How To Qualify for a Loan With Bad Credit

1. Review your credit report and score: Use AnnualCreditReport.com to get a copy of your credit report from each of the three credit bureaus: Equifax, Experian and TransUnion.

2. Check your current lenders or creditors to see if any offer a free credit score: You can view your score through your bank or credit card issuer, or use free tools like Credit Karma or Experian. It’s helpful to review your score before applying, since lenders may use different scoring models when evaluating your application.

3. Look for loans for people with bad credit and compare rates and terms: Online lenders, as well as some banks and credit unions, offer these types of loans. Consider loan limits, origination fees and APRs when comparing.

4. Take advantage of loan prequalification: Loan prequalification can give you an idea of estimated amounts, rates and terms certain lenders may offer you. The process involves a soft credit check that won’t affect your credit score.

5. Submit your application for the loan that best fits your needs: If you find a loan that is affordable and meets your funding needs, submit an application. You’ll need to provide personal and income information.

6. Review the offer: If approved, review the offer, including the amount, rate and term, as well as any fees, before accepting. The offer might vary from the prequalification estimate.

Fast Ways To Improve Approval Odds

• Check your credit report for errors that are lowering your score. If you find any, delay applying for the loan until you dispute the errors with the creditor or lender that reported the false information and the credit bureau responsible for the report.

• Consider applying for a loan from a credit union, which typically offers more flexible lending standards and better rates than a traditional bank.

• Apply for a secured loan if you have collateral.

• Ask a family member or close friend with good credit to co-sign.

What a Bad Credit Loan Can Cost: Example

Here’s a simple example to show how costs can vary between short-term and installment loans:

Short-term loans, such as payday loans, typically cost $15 to $30 per $100 borrowed, according to the Federal Trade Commission (FTC). In this example, that adds $75 to $150 in fees on a $500 loan.

By comparison, installment loans — including many personal loans — usually have APRs between 6% and 36%, with higher rates for borrowers with bad credit. In this case, a 30% APR with monthly compounding results in about $45 in interest.

Even with a longer repayment term, the installment loan is less expensive in this example. It also allows you to spread payments over time, while the payday loan requires a lump-sum repayment on your next paycheck.

Benefits of Bad Credit Loans

• You may be able to prequalify for the loan and view the estimated amount, rate and term with only a soft inquiry.

• Rates may be lower than for a payday loan or credit card cash advance.

• Making payments on time can help build your credit.

Risks of Bad Credit Loans

• Higher-than-average interest rates can make it difficult to pay back the loan.

• Origination or processing fees may be higher, such as 10% versus 1% to 5%.

• The loan amount might not be enough for your needs, yet you’ll be saddled with another payment.

Alternatives to High-Cost Loans

If you have bad credit, there may be safer and more affordable ways to borrow than high-cost loans:

FAQs

Still wondering how you can get a loan with bad credit? These FAQs cover common questions and options:

Can You Get a Loan With No Credit Check?

It’s possible to get a payday loan with no credit check. However, payday loans often come with high interest rates in the triple digits or high fees.

What is the easiest loan to get with bad credit?

The easiest loan to get with bad credit is a payday loan because there are no credit checks. However, payday loans come with very high interest rates or fees. Plus, you must repay the full amount with your next paycheck, which can lead to ongoing financial stress.

How can I get $2,000 with bad credit?

Apply with lenders who offer personal loans for bad credit, such as Upstart or One Main Financial. A secured personal loan, which requires collateral, is another option.

What credit score do I need?

A credit score of 580 or lower is common for bad credit loans.

Will applying hurt my credit?

Personal loan lenders will generally run a hard inquiry if you submit an application. Hard inquiries will temporarily lower your score by less than five points.

Do these loans build credit?

It depends on the type of loan. Payday lenders may not report your payment history to credit bureaus. However, installment loan lenders generally do.

Are payday loans safe?  

Payday loans are risky in that they charge much higher interest rates or fees than other types of loans. This can make it difficult to repay the balance on time and can lead to a cycle of repeated borrowing.

Sources

• MyFICO. "What is a Credit Score?"

• FTC. "What To Know About Payday Loans."

Andrew Lisa contributed to the reporting for this article.

Photo Credit: Getty Images/Geber86