Having a poor credit score can feel like a major obstacle when you need a personal loan. Whether it’s for an emergency, consolidating high-interest debt, or covering unexpected expenses, a bad credit score may limit your options—but it doesn’t make borrowing impossible. The good news is that there are lenders and strategies specifically designed for individuals with less-than-stellar credit.
This guide will explore how to get a personal loan with bad credit, give actionable tips to improve your chances of approval, and highlight lenders and platforms that cater to bad credit borrowers. By the end, you’ll know how to navigate this challenge and make the best financial decision for your needs.
Understanding Bad Credit and Its Impact
Before we jump into how to get a loan, it’s important to understand what “bad credit” means and how it affects borrowing.
What Is Considered Bad Credit?
Your credit score is a three-digit number that reflects your financial habits, such as paying bills on time and managing debt. Credit scores typically fall into these ranges:
- Excellent: 750 and above
- Good: 700–749
- Fair: 650–699
- Poor (Bad): Below 650
If your score falls below 650, you might be considered a high-risk borrower by traditional lenders, such as banks.
How Bad Credit Affects Loan Applications
- Higher Interest Rates: Lenders charge more to offset the risk of lending to individuals with a poor credit history.
- Limited Loan Options: Many lenders have minimum credit score requirements, making it harder to qualify for traditional personal loans.
- Lower Loan Limits: Borrowers with bad credit may only qualify for smaller loan amounts.
While these challenges exist, there are ways to handle them effectively.
Steps to Getting a Personal Loan with Bad Credit
1. Look for Specialized Lenders
Some lenders focus specifically on serving people with bad credit, offering loans with more flexible requirements. These loans often come with higher interest rates, but they can provide a financial lifeline when other options aren’t available.
Examples of Bad Credit Lenders
- Upgrade: Offers personal loans with a minimum credit score requirement of 560.
- Avant: Known for considering borrowers with credit scores as low as 550.
- OneMain Financial: Provides secured and unsecured loans for those with poor credit.
Platforms to Explore
- OppLoans: Specializes in giving smaller, quick-approval loans for bad credit borrowers.
- LendingPoint: A well-rated lender offering loans for fair-to-bad credit scores.
Many of these lenders provide prequalification tools that won’t affect your credit score. Use these tools to compare offers before committing.
2. Improve Your Creditworthiness
Even modest improvements in your credit score can unlock better loan options and lower interest rates. Here are simple steps to boost your credit score quickly before applying for a loan.
Tips to Improve Credit Fast
- Pay Bills on Time: Timely payments on credit cards, loans, or utilities reflect positively on your credit history.
- Lower Credit Utilization: Aim to use less than 30% of your total available credit. For example, if your limit is $1,000, try to keep your balance below $300.
- Dispute Credit Report Errors: Request a free credit report from AnnualCreditReport.com and immediately dispute any inaccuracies.
- Clear Outstanding Debts: Paying off old collections or overdue accounts can add points to your credit score.
While it may take a little time, these efforts can quickly improve your credit health and make you a more appealing borrower.
3. Consider Secured Loans
If unsecured personal loans (loans that don’t require collateral) are out of reach, a secured loan can be a solid alternative. Because these loans require collateral, they’re less risky for lenders, making them easier to qualify for with bad credit.
How Secured Loans Work
- You provide an asset, such as a car or savings account, as collateral for the loan.
- If you fail to repay, the lender has the right to seize the asset to recoup their loss.
Benefits of Secured Loans
- Higher chances of approval.
- Lower interest rates compared to unsecured loans for bad credit borrowers.
- Larger borrowing amounts may be available since the loan is backed by collateral.
However, before pursuing a secured loan, carefully evaluate your ability to repay to avoid losing your asset.
4. Explore Lending through Credit Unions
Credit unions are member-focused financial institutions known for offering loans with more favorable terms than traditional banks. Many credit unions prioritize people over profits, making them more willing to work with individuals who have bad credit.
Why Choose a Credit Union?
- Lower interest rates compared to payday loans or cash advances.
- Personalized service, including financial coaching.
- Flexible underwriting requirements, often taking your overall financial picture into account instead of just your credit score.
How to Join
Many credit unions require you to become a member, which often involves living in a specific area, working in a given industry, or paying a nominal membership fee. Examples include Navy Federal Credit Union and PenFed Credit Union.
5. Find a Co-Signer for Your Loan
A co-signer is someone—usually a close friend or family member—who agrees to take responsibility for your loan if you fail to repay. By adding a co-signer, lenders gain more assurance, potentially improving your odds of approval or securing a lower interest rate.
How It Works
- The co-signer’s good credit strengthens your application.
- Payments (or missed payments) will appear on both your credit report and the co-signer’s report.
Important Considerations
Make sure you and your co-signer fully trust each other, as any missed payments could harm the co-signer’s credit score and your personal relationship.
6. Avoid High-Risk Options
When you’re in financial distress, it’s easy to fall for “quick-fix” options that sound too good to be true. Be cautious!
Red Flags to Watch For
- Payday Loans: These loans come with sky-high interest rates (often 300% or more) and short repayment periods, leading many borrowers into a cycle of debt.
- Title Loans: Similar to payday loans, but they use your vehicle as collateral. Defaulting could result in losing your car.
- No-Credit-Check Loans: While some legitimate lenders offer no-credit-check loans, others charge predatory fees or interest rates.
Instead, focus on lenders who take a fair and transparent approach to helping borrowers with bad credit.
How to Make the Most of Your Loan
Getting approved is only the first step—responsibly managing your loan is equally essential. Here are some tips to stay in control of your finances post-approval.
- Create a Budget: Understand how much you can afford to pay each month without straining your finances.
- Automate Payments: Set up automatic payments to avoid missing due dates.
- Communicate with Your Lender: If you anticipate difficulty making a payment, contact your lender immediately to explore alternatives. Many lenders may offer deferral options or adjusted repayment terms.
- Use Funds Wisely: Stick to the purpose of the loan and avoid using borrowed money for unnecessary expenses.
Final Thoughts
Getting a personal loan with bad credit is challenging, but by exploring your options and using the strategies outlined in this guide, you can overcome these hurdles. From bad credit lenders and credit unions to secured loans and co-signers, there are pathways that fit your financial situation and goals.
The key is to approach borrowing thoughtfully. Avoid risky options, take proactive steps to improve your credit score, and focus on selecting a lender or loan product that meets not just your immediate needs but also your long-term financial health. With the right tools and mindset, securing a loan—even with bad credit—can be a manageable and empowering process.