How to Get a Personal Loan With Bad Credit

It’s possible to borrow with less-than-stellar credit, but whether you should is another question altogether.

Written by Rebecca Safier / October 6, 2022

Quick Bites

  • Borrowing a personal loan with bad credit can make the debt more expensive, thanks to higher interest rates.
  • Improve your chances of personal loan approval (and a lower APR) by considering a co-applicant, a secured loan or another type of financing.
  • Community banks and credit unions are known to have more flexible eligibility criteria if you have been a good customer.
  • If possible, delaying personal loan borrowing until you’re more creditworthy is a wise move.

Lenders look at your credit before approving you for a personal loan to see how you’ve handled debt in the past. If you have bad credit, lenders might be wary of approving your application or will assign you higher interest rates on a loan.

With bad credit, you’re “either going to get rejected or be approved for a loan with less favorable terms,” says Julian Morris, certified financial planner (CFP) and principal and founder of Concierge Wealth Management.

Some lenders are willing to work with so-called bad-credit borrowers, and others may lend to you if you add a cosigner, co-borrower or collateral to your application.

If you’re shopping for a loan with bad credit, here are some steps that can help you put your best foot forward.

Inside this article

  1. 1. Check your credit
  2. 2. Research lenders
  3. 3. Prequalify
  4. 4. Add a cosigner
  5. 5. Consider a secured loan
  6. Places to get a bad-credit loan
  7. How bad credit affects the loan
  8. Types of bad-credit loans
  9. Tips to avoid bad-credit loans

1. Check your credit

Before you start applying for personal loans, it’s useful to know what kind of credit you’re working with. Most lenders set a minimum credit score requirement to qualify for a loan, but some are more flexible than others.

You can review your various accounts by requesting a free copy of your credit report from AnnualCreditReport.com. If you spot any errors that are dragging your credit down, try disputing them to have them removed.[1]

While your credit reports won’t reveal your credit score, you can view them on each credit reporting agency’s websites. Equifax and Experian share your credit score for free, while the third credit bureau, TransUnion, charges a fee for this service.

You can alternatively use a third-party credit score monitoring service to view your scores. Some credit card companies will also show you your credit scores through your online account.

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The Five Things That Make up Your Credit Score

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2. Research lenders

Once you have a sense of your credit, your next step is to start researching lenders. It may be worth speaking to your current bank or credit union about your options. If you have an existing relationship with a lender, they might be more understanding about a less-than-perfect credit score.

Check to see if a lender shares its minimum credit score requirement on its website. If not, try contacting the lender’s customer service team to see if it will share this information. By pounding the pavement, you might find a lender with more lax credit requirements.

Here are the best personal loan companies and their minimum credit score requirements, according to Sound Dollar research:

Company
SoFi personal loans logoVisit
Winner
Winner
Best overall
APRs*
APRs*
7.99% - 23.43%
Minimum credit score
Minimum credit score
680
Visit
Winner
Winner
Editor's pick
APRs*
APRs*
6.74% - 17.99%
Minimum credit score
Minimum credit score
650
Winner
Winner
Best for fair credit
APRs*
APRs*
5.99% - 24.99%
Minimum credit score
Minimum credit score
600
Winner
Winner
Best for good credit
APRs*
APRs*
3.99% - 19.99%
Minimum credit score
Minimum credit score
Not stated
Winner
Winner
Best for debt consolidation
APRs*
APRs*
6.99% - 19.99%
Minimum credit score
Minimum credit score
Not stated

*Rates as of July 8, 2022. Visit lender for most up-to-date APRs.

3. Prequalify

Some lenders let you check your rates online through prequalification, a quick process that doesn’t impact your credit. Prequalification, also known as preapproval, can give you a sense of whether you’d qualify for a loan and what your interest rates would be.

To prequalify for a loan, you typically need to enter a few basic pieces of information, such as your name, address, requested loan amount, loan purpose and income. Then, the lender will show you what offers, if any, you might qualify for.

You can head directly to a lender’s website to see if it offers prequalification. Consider using a personal loan marketplace too, which lets you check your rates with multiple lenders at the same time.

How to Apply for a Personal Loan

How to Apply for a Personal Loan

The most important steps involve preparation, before you even start the application process.

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4. Add a cosigner

If you’re struggling to qualify for a personal loan on your own, you could boost your chances by adding a cosigner or co-borrower to your application. Adding a co-applicant can reduce risk in the eyes of a lender, and your backer’s strong credit can make up for your weak credit.[2]

Not only can adding a co-applicant help you get approved, but they might score you better interest rates.

Alert

Cosigning debt is a big ask since your cosigner becomes equally liable for the loan. If you can’t pay it back on time, your cosigner’s credit could be damaged, and they will be expected to pay back the amount. It works the same way for co-borrowers—the only difference is that co-borrowers, unlike cosigners, have equal access to the loan funds.

5. Consider a secured loan

Secured loans, or debt backed by collateral, tend to have lower credit requirements than unsecured loans. Backing up your loan with an asset, such as your home, car or savings account, reassures a lender that it will be able to recoup its losses in the event you default.

Secured loans may come with lower interest rates and higher loan amounts than unsecured ones. The risk of taking out a secured loan, though, is that you could lose your asset if you fall behind on payments.[3] Be careful about securing debt with valuable collateral if you’re unsure about your ability to afford repayment.

Secured vs. Unsecured Loans: What Are the Differences?

Secured vs. Unsecured Loans: What Are the Differences?

Auto and home loans are naturally a form of secured debt—they’re secured by a car or house—but personal loans can be secured or unsecured.

Find out more

Places to get a loan with bad credit

Whenever you borrow a loan, it’s a good idea to shop around to find the best deal. This process of comparison shopping is especially important if you have bad credit, as you might find that one lender is willing to work with you where another is not. Here are some places to look as you search for a personal loan.

  • Your bank: If you’re already a member at a bank, check with yours to see if it can offer you a loan. Community banks are especially known for customer service and maintaining positive relationships with their customers, so they might be willing to overlook bad credit if you have a history of managing your accounts well.

  • Credit union: Credit unions are also known for strong customer service and may be willing to look at the whole picture of your finances, rather than disqualify you immediately on the basis of your credit score. Note that you’ll likely need to become a member to work with a credit union.

  • Online lender: Some online lenders work with bad-credit borrowers without charging excessive fees or interest. Plus, many online lenders let you prequalify and can fund your loan quickly.

Alert

Be wary of lenders that advertise no-credit check loans, as these are likely payday loans with sky-high interest rates and fees. While you might get a loan, you’ll probably have to pay it back on your next paycheck with exorbitant costs added to your balance.

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Debt Consolidation with Bad Credit: What You Need to Know

If you have a low credit score, debt consolidation will be tricky. But it can be done with the right approach.

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How bad credit affects your personal loan terms

Bad credit can make it challenging to get approved for a loan. Lenders review your credit to see how you’ve managed debt accounts in the past. A negative or thin credit history can be a red flag to them, as it indicates that you might not pay back loans on time.

Lenders are all about minimizing their risk before lending money. They see bad credit as high risk, while good or excellent credit represents lower risk. Even if you can get approved, you might get worse interest rates, shorter repayment terms or lower loan amounts than good-credit borrowers.

Some lenders might also require that you apply with a co-applicant or pledge an asset as collateral before approving your application. If you can improve your credit before borrowing money, you could have an easier time qualifying and get a more affordable loan.

Here are the pros and cons of bad-credit personal loans:

Pros

  • Interest rates may be lower than payday loans and credit cards
  • Some lenders offer fast funding
  • On-time payments on your loan could improve your credit score

Cons

  • Interest rates may be higher than they would be for good-credit borrowers
  • Some lenders may require that you apply with a cosigner or collateral
  • Late payments on your loan could further damage your credit score

Types of bad-credit loans

While a personal loan is one option for a bad credit loan, it’s not your only one. Here are all of the loan types worth considering:

  • Unsecured personal loan: You can find these loans from banks, credit unions and online lenders, and they don’t require any collateral. However, these loans can be tough to qualify for with bad credit and no cosigner.

  • Secured personal loan: Some lenders let you borrow a personal loan with collateral. Pledging collateral can ease credit requirements, but you run the risk of losing your collateral if you default.

  • Peer-to-peer (P2P) loan: P2P loans work similar to personal loans but are funded by individual investors, rather than financial institutions, and may have more flexible credit requirements.[4]

  • Payday Alternative Loan (PAL): Some credit unions offer small-amount PALs, typically up to $1,000 or $2,000, with a maximum interest rate of 28%.[5]

  • Home equity loan or home equity line of credit (HELOC): If you’re a homeowner, you might be able to draw on the equity of your home with a home equity loan or HELOC. A home equity loan works like an installment loan, while a HELOC is a line of credit that you can draw on as needed. Both are secured debt, with your home as collateral.[6]

  • Paycheck advance app: Some apps, such as Brigit and Earnin, offer small paycheck advances of $250 or $500 to qualifying consumers. Most don’t check your credit, but they do require you to hold an active checking account with regular direct deposits. These money loaning apps can help you out in a pinch, but they typically withdraw payment automatically on your next paycheck.

Reset

Payday loans are another option, as many payday lenders don’t check your credit at all. However, payday loans are often considered a form of predatory lending, as they can charge APRs of 400% or more and trap borrowers in a cycle of debt. They might not even legal in your state.[7]

Tips to avoid bad-credit loans if you can

While there are options for bad credit loans, chances are your interest rates and fees will be on the high side. Here are some ways to avoid the high costs of bad credit loans before you borrow.

Take steps to improve your credit

If you don’t have an immediate need for a loan, take steps to improve your credit before you apply.

“I would concentrate on fixing credit and having ample cash on hand rather than having to take out loans at high interest rates,” says Morris. “By controlling your spending and debt levels, you will increase credit over time and make yourself more attractive to lenders, which results in a higher chance of approval and more favorable rates.”

Julian Morris headshot

Meet the Expert

In addition to his CFP designation, Morris is a Chartered Financial Consultant. He has worked as a financial planner since 2004.

Paying down debt, making on-time payments and reducing your credit utilization can all boost your score. If you find any mistakes on your credit report, try disputing them to have them removed. If you can get your credit into the fair or good range, you’ll have more options for loans at better rates.

Save for the expense

Another option worth considering is saving for the expense, rather than borrowing a loan. If you’re borrowing money for a discretionary expense, such as a vacation or wedding, spend some time socking away cash instead of borrowing from a lender. That way, you can stay within budget and avoid interest charges and fees.

Recognize the signs of predatory lenders

If you’re looking for bad-credit loans, you might come across predatory lenders making promises that are too good to be true. As mentioned, lenders that don’t check your credit will likely charge you expensive interest rates and fees. In the worst case scenario, a company might not be legitimate and could be out to steal your money or identity. By learning the red flags of predatory lending and loan scams, you can protect yourself from these bad actors.

Article Sources
  1. “How do I dispute an error on my credit report?” Consumer Financial Protection Bureau (CFPB), Oct. 19, 2021, https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/.
  2. “What is a co-signer?” CFPB, June 23, 2021, https://www.consumerfinance.gov/ask-cfpb/what-is-a-co-signer-en-745/.
  3. “Personal Loans: Secured vs. Unsecured,” MyCreditUnion.gov, https://www.mycreditunion.gov/life-events/consumer-loans/secured-unsecured.
  4. “Peer-to-Peer (P2P) Lending: How Does It Work?” Capital One, Aug. 4, 2022, https://www.capitalone.com/learn-grow/money-management/peer-to-peer-lending/.
  5. “Payday Alternative Loans,” National Credit Union Administration (NCUA), https://www.ncua.gov/files/agenda-items/AG20190919Item4b.pdf.
  6. “Home equity loan vs. line of credit? Here’s what you need to know,” Bank of America, https://www.bankofamerica.com/mortgage/learn/home-equity-loan-vs-line-of-credit/.
  7. “What are the costs and fees for a payday loan?” CFPB, Aug. 28, 2020, https://www.consumerfinance.gov/ask-cfpb/what-are-the-costs-and-fees-for-a-payday-loan-en-1589/.

About the Author

Headshot of personal finance writer Rebecca Safier

Rebecca Safier

Rebecca has been writing about personal finance and education since 2014. Formerly a senior student loans and personal loans writer for Student Loan Hero and LendingTree, Rebecca now covers a variety of personal finance topics, including budgeting, saving for retirement, home buying and more.

Full bio

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