Types of Small Loans for Bad Credit

Small loans available with bad credit include credit builder loans, payday alternative loans from credit unions, secured loans, small installment loans and cash advance apps. Payday and title loans sit in a separate category, since their cost is high enough that many borrowers take a second loan to clear the first.

Lenders offset weak credit with higher rates, smaller amounts and requests for collateral or a co-signer, so the loan you can get may not be the loan you wanted. Prequalifying with several lenders uses a soft credit pull, which shows you the rate and fees before an application shows up on your credit report.

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If a payday or title loan already has you rolling a balance over, a credit union payday alternative loan can pay it off at a capped rate, and many states require payday lenders to offer an extended payment plan when you ask. Nonprofit credit counseling agencies review your options in a free first session and can set up a repayment plan with your creditors.

Key Takeaways

• Payday alternative loans cap interest at 28% and the application fee at $20. Federal credit unions offer them for $200 to $2,000, and they can't be rolled over.

• A typical payday loan charges $15 per $100 borrowed, which works out to an APR near 400% on a two-week term. Title loans carry similar pricing and put your vehicle at risk.

• Credit builder loans hold the money in a locked account until you finish paying. You get the payment history first and the cash at the end, which makes them the lowest-risk way to raise a score.

• Payment history drives 35% of a FICO score, more than any other factor. A lender that skips reporting to Experian, Equifax and TransUnion does nothing for your credit no matter how well you pay.

• Prequalification runs a soft credit pull that leaves your score untouched. Applying triggers a hard inquiry, so compare offers before you commit to one.

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.

Can You Get a Small Loan With Bad Credit?

Bad credit still qualifies you for several small loans, including credit builder loans, secured loans, credit union payday alternative loans and installment loans from online lenders. What changes is the price and the size. Lenders that approve thin or damaged credit files charge more for the risk, and some ask for collateral or a co-signer before they'll fund anything.

How Lenders View Bad Credit

Lenders price and structure loans around the odds you'll fall behind.

• Higher APRs. A weak credit file moves you into a lender's top rate tier, so the same loan costs more than it would for a borrower with good credit.

• Smaller loan amounts. Lenders cap what they'll lend to limit their exposure if you default, which can leave you short of what you need.

• Extra conditions. Some lenders will only approve you with collateral, a co-signer or a shorter repayment term.

What Counts as Bad Credit

Lenders generally treat a FICO score below 580 as poor and 580 to 669 as fair, and both ranges get quoted subprime rates. Here's where each band falls on the FICO 8 scale.

Types of Small Loans for Bad Credit

The loans below run from the least risky to the most, measured by what they cost and how easily they turn into repeat borrowing.

Credit Builder Loans

A credit builder loan holds the borrowed amount in a locked savings account while you make the payments, then releases the money once you've paid in full. Because the lender isn't advancing you cash, approval rarely depends on your score, and the payments get reported to the credit bureaus along the way.

The tradeoff is timing. You don't get the money when you need it, so this works for raising a score rather than covering a bill that's due now.

Payday Alternative Loans (PALs)

Federal credit unions offer payday alternative loans with interest capped at 28% and the application fee capped at $20, and qualification leans on your income rather than your score. The NCUA bars rollovers and limits members to one PAL at a time, which is what keeps the loan from turning into a cycle.

Two versions exist, and the credit union decides which it offers.

• Payday alternative loans I. Borrow $200 to $1,000 over one to six months, after you've been a member for at least one month.

• Payday Alternative Loans II. Borrow up to $2,000 over one to 12 months, with no waiting period after you join.

Cash Advances and Earned Wage Access

Cash advance apps front you money you've already earned and pull it back on your next payday, usually within minutes of the request. Most charge no interest, though instant transfer fees, monthly subscriptions and optional tips add to the cost of a small advance.

These advances aren't reported to the credit bureaus, so paying one back on time does nothing for your score. Leaning on them every pay period also signals a budget gap that a loan won't noclose.

Secured Loans

A secured loan uses a savings account, certificate of deposit or vehicle as collateral, which lowers the lender's risk and your rate. Approval is easier than an unsecured loan at the same credit level for the same reason.

The collateral is the catch. Falling behind means the lender can take the asset, so a secured loan turns a credit problem into a lost car or drained savings account.

Small Personal Installment Loans

An installment loan gives you a lump sum you repay in fixed monthly payments over a set term, and most lenders report those payments to all three bureaus. Amounts for bad-credit borrowers typically land between $500 and $5,000, with rates at the high end of a lender's range.

Watch the origination fee, which comes out of the money you receive rather than being billed later. A loan advertised at $2,000 can land in your account a few hundred dollars lighter.

Co-Signed or Joint Loans

Adding a co-signer puts someone else's credit history behind your application, which can win you approval and a lower rate than you'd get alone. Lenders price the loan using the stronger file.

Your co-signer carries full legal responsibility for the balance. A missed payment hits their credit as hard as yours, and the lender can pursue them for the full amount.

Payday and Title Loans

Payday and title loans are the most expensive small loans available and the easiest to get stuck in. A finance charge of $15 per $100 borrowed on a two-week payday loan works out to an APR near 400%, and the full balance comes due on your next payday rather than in installments.

Title loans add your vehicle as collateral, so a missed payment can cost you the way you get to work. Neither loan is reported to the credit bureaus when you pay on time, meaning the cost buys you nothing toward a better score.

Here's how the options compare on cost, speed and credit impact.

What To Watch Out For With Bad Credit Loans

Subprime lending attracts operators who make their money on fees and rollovers rather than repayment. Read the loan agreement in full before you sign, and treat pressure to sign quickly as a reason to walk.

Warning Signs of a Predatory Lender

Any of the following is reason to check the lender against Better Business Bureau and Consumer Financial Protection Bureau complaint records before going further.

Fees That Inflate the Cost

Origination fees run 1% to 10% of the loan and come out of the proceeds, so you receive less than the amount you agreed to borrow while repaying the full balance. Prepayment penalties work the other way, charging you for clearing the loan ahead of schedule.

Late fees, non-sufficient funds fees and payment processing charges also stack up on small loans, where a flat fee is a large share of the balance. Ask the lender for a fee schedule in writing and check whether each fee is already counted in the APR.

How To Choose the Right Small Loan for Bad Credit

Match the loan to the reason you're borrowing.

• A one-time expense like a car repair or medical bill. A small installment loan gives you a fixed payment and a payoff date, which keeps the balance from lingering.

• Building or repairing credit. A credit builder loan is designed for this, and you should confirm the lender reports to all three bureaus before signing.

• Cash before your next paycheck. A cash advance app or a credit union PAL covers the gap without the pricing of a payday loan.

Compare the Total Cost, Not the Monthly Payment

A longer term shrinks the monthly payment while raising what you pay overall, so two offers with the same payment can differ by hundreds of dollars.

• Multiply the monthly payment by the number of months. That total, minus the amount you borrowed, is what the loan costs you.

• Compare APRs rather than interest rates. The interest rate leaves out the origination fee, while the APR folds it in.

• Ask which fees sit outside the APR. Late fees and payment processing charges usually aren't included, and they add up on a small balance.

Confirm the Lender Reports to All Three Bureaus

Payments only build credit if the lender sends them to Experian, Equifax and TransUnion, and some small-dollar lenders report to one bureau or none. Ask before you sign, since a loan that goes unreported costs you the same in interest and leaves your score where it started.

How To Qualify for a Small Loan With Bad Credit

Lenders working with bad credit lean on proof you can repay rather than your score.

• Steady income. Pay stubs, benefit statements or self-employment records show the money to cover the payment.

• An active checking account in good standing. Lenders want to see regular deposits and withdrawals, and they use the account for repayment.

• Account age. Many lenders want the account open at least 30 to 90 days before they'll fund a loan.

• Age and residency. You need to be at least 18 and able to verify your identity with a Social Security number, though some lenders accept an ITIN.

• No recent overdrafts. A run of non-sufficient funds charges suggests the payment will bounce.

How Prequalification Protects Your Credit

Prequalifying runs a soft credit pull, which shows you the rate, term and fees you'd likely get without affecting your score. That lets you collect offers from several lenders and compare them side by side.

Submitting a full application triggers a hard inquiry, which can shave a few points off your score and stays on your report for two years. Doing that once, with the offer you've already chosen, limits the damage.

Steps To Strengthen Your Application

• Add a co-signer. The lender underwrites using their credit history, which can turn a denial into an approval at a better rate.

• Offer collateral. A savings account or vehicle backing the loan lowers the lender's risk and usually the rate along with it.

• Ask for less. Requesting a smaller amount raises your approval odds and keeps the payment manageable.

How Small Loans Help Rebuild Credit

A small loan rebuilds credit by generating a record of on-time payments at the bureaus, which is why the lender's reporting practices matter as much as the rate.

Why On-Time Payments Matter Most

Payment history accounts for 35% of a FICO score, more weight than any other factor. Consistent on-time payments over several months build the record lenders look for, while one missed payment can undo months of progress.

Autopay from the checking account you already use for the loan protects that record. Set it for the full payment on the due date rather than paying manually.

Choosing Loans That Report to All Three Bureaus

Scores differ across Experian, Equifax and TransUnion because lenders don't all report to every bureau, and a lender may pull a different one than the bureau your loan appears on. A loan reported to all three moves every version of your score.

That reporting is what puts you in position to borrow at a lower rate next time, which is the practical payoff of a credit builder or installment loan.

Frequently Asked Questions

What types of small loans can I get with bad credit?

Credit builder loans, payday alternative loans from federal credit unions, secured loans, small installment loans from online lenders and cash advance apps are all available with a low score. Terms and pricing vary widely across them.

What is the easiest loan to get with bad credit?

Cash advance apps and payday alternative loans have the loosest requirements while still keeping costs down, since both weigh income more heavily than your score. Payday and title loans are also easy to get, but they carry triple-digit APRs and, for title loans, the risk of losing your vehicle.

Which bad credit loan is the safest and cheapest?

A payday alternative loan from a federal credit union caps interest at 28% and bars rollovers, which makes it the safest small loan for most borrowers. Consumer advocates generally treat 36% APR as the ceiling for an affordable loan.

Can a small loan help rebuild my credit?

On-time payments build credit only when the lender reports them to Experian, Equifax and TransUnion. Confirm the lender reports to all three before you sign, since cash advance apps and payday lenders typically report nothing.

What credit score do I need for a small personal loan?

Many lenders that work with bad credit set a minimum around 580, though some approve lower scores based on income and banking history. Rates improve noticeably once you're above 620.

Should I avoid no credit check loans?

No credit check loans skip the step where a lender verifies you can repay, and they usually carry triple-digit APRs and short terms to match. A credit union PAL or a secured loan covers the same need at a fraction of the cost.

Key Terms

• Annual percentage rate (APR). The yearly cost of borrowing, including interest and certain upfront fees, which makes it the number to compare across offers.

• Credit builder loan. A loan that holds the borrowed funds in a locked account while you repay it, releasing the money after the final payment.

• Payday alternative loan (PAL). A small-dollar loan from a federal credit union with interest capped at 28% and rollovers prohibited by the NCUA.

• Origination fee. A one-time charge for processing a loan, deducted from the proceeds so you receive less than the amount borrowed.

• Secured loan. A loan backed by collateral such as a savings account or vehicle, which the lender can claim if you default.

• Soft credit pull. A credit check used for prequalification that doesn't affect your score, unlike the hard inquiry triggered by a full application.

• Balloon payment. A large lump sum due at the end of a loan after a run of smaller payments.

Sources

• National Credit Union Administration. "Payday Alternative Loans"

• National Credit Union Administration. "Payday Alternative Loan Rule Will Create More Alternatives for Borrowers"

• Consumer Financial Protection Bureau. "What are the costs and fees for a payday loan?"

• Consumer Financial Protection Bureau. "What is a payday loan?"

• myFICO. "What is a Credit Score?"

• Experian. "What Is a Good Credit Score?"