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What are the best personal loans for people with bad credit?
It isn’t easy to get a personal loan if you have bad credit because you won’t meet many lenders’ minimum scoring requirements. There’s no universal minimum credit score required for a personal loan, but in general, if your score isn’t at least in the mid-600s, you’ll have a hard time qualifying.
That said, here are the best personal loans you may still be able to qualify for:
Best Personal Loans for Bad Credit
- Upstart – Best for Bad Credit Overall
- Possible Finance – Best for Small and Short-term Loans
- LendingPoint – Best for Debt Consolidation
- LendingClub – Best for Refinancing
- OneMain Financial – Best for Major Purchases
- Avant – Best for Medical Bills and Unexpected Costs
- LightStream – Best for Home Improvement
Best for Bad Credit Overall
Best for Small and Short-term Loans
Best for Debt Consolidation
Best for Refinancing
Best for Major Purchases
Best for Medical Bills and Unexpected Costs
Best for Home Improvement
Best Personal Loans for Bad Credit
| Loan | Best For | Loan Amount | Loan Term | Credit Score |
|---|---|---|---|---|
| Bad Credit Overall | $1,000–$50,000 | 3–5 years | ||
| Small and Short-term Loans | $50–$500 | 8-12 weeks | ||
| Debt Consolidation | $2,000–$36,500 | 2–5 years | ||
| Refinancing | $1,000–$40,000 | 3 or 5 years | ||
| Major Purchases | $1,500–$20,000 | 2–5 years | ||
| Medical Bills and Unexpected Costs | $2,000–$35,000 | 2–5 years | ||
| Home Improvement | $5,000–$100,000 | 2–12 years | 660–850 |
Interest rates for bad-credit loans
The interest rate you’ll pay on a bad-credit loan depends on factors like how much you want to borrow, your finances, and your credit score. In general, expect an annual percentage rate (APR) in the high 20s or 30s. (A loan’s APR is essentially the same as its interest rate, although it also accounts for any additional fees.)
How to get a loan with bad credit
To get a bad-credit personal loan, follow these steps:
1. Create a budget
Before you do anything else, calculate your debt-to-income ratio and decide how much you can afford to repay each month for your loan. Taking out a personal loan can help you cover your bills, but if you don’t budget properly, you might struggle to repay it, which will damage your credit score even further and might saddle you with debt you won’t be able to pay back.
2. Check your credit and dispute any errors you find
Before you apply for a loan, you should check what your credit score is. Lenders often have minimum credit score requirements, and if you already know you’re not eligible, you can save yourself time and avoid unnecessary hard inquiries.
You may be able to find your credit score on your credit report or on your credit card or loan statements. Alternatively, you can buy your FICO score and VantageScore directly from the credit scoring companies, or from the credit bureaus. 1
In light of the pandemic, you can get a free digital copy of your credit reports every week until the end of 2022 by visiting AnnualCreditReport.com. Some bureaus may include your credit score for free, but others may not.
Once you have your reports, check for and dispute credit reporting errors. If you can successfully remove negative marks from your reports, it might boost your score and get you better terms on your loan.
3. Compare loan rates and terms
Carve out some time to look for the best personal loan. Different lenders may offer different interest rates and loan terms.
The companies we listed above have some of the most affordable monthly bills, cheapest rates, and favorable terms for borrowers with bad credit.
When you do your own research, take advantage of online discussion forums and other sites with firsthand user reviews.
4. Try to pre-qualify for your loan
Pre-qualifying for a loan lets you check how strong your chances of getting it are without triggering a hard inquiry. It can also give you a better idea of how much you can borrow, how much interest you’ll pay, and how long you have to repay the loan.
Many lenders offer pre-qualification tools on their websites. You can also search for third-party pre-qualification sites (such as Experian’s pre-qualification service) and answer a few questions to find out which personal loans you may be eligible for.
5. Consider adding an applicant
If your credit is particularly bad, add a joint applicant or cosigner to your application to qualify for a better interest rate. Joint applicants are equally responsible for repaying your loan, while co-signers are usually only required to repay your debt if you fail to.
6. Submit your application
When you’re ready to apply for a loan, you usually need to submit:
- Pay stubs
- Tax returns and your last two W-2 and 1099 forms
- Proof of current employment and your job history
- Bank statements
- Your passport, driver’s license, or another form of identification
If you’re meeting your lender face-to-face, you’ll need to bring these documents to your meeting. If you’re using an online lender, you’ll normally have to submit photos of the documents or send them by post.
Once you’ve submitted your application, sit tight and wait for a decision. You might receive a response the same day, but most lenders will get back to you within a few days.
How to boost your credit score to qualify for better rates
The primary benefit of having good credit is that you can qualify for lower interest rates. When you’re applying for a large installment loan, that can potentially save you hundreds of dollars a month or thousands of dollars over the lifetime of the loan.
Use the following strategies to fix your credit score and qualify for better interest rates:
- Always pay your bills on time: Your payment history affects 30% of your FICO score and 40–41% of your VantageScore, which is why the best way to increase your credit score is to build a history of on-time payments.
- Reduce your credit utilization: In general, the lower your credit utilization (the percentage of your available credit you’re spending) on your credit cards, the better. VantageScore says that a debt-to-credit ratio of less than 10% is optimal. If that’s not realistic for you, many experts claim that you should at least try to keep it under 30%. 2
- Keep your old accounts open: For the same reason, it’s best to keep your old accounts open if you can. Any time you close a card, you’re reducing your available credit, which will increase your credit utilization and drop your score. It’s usually better to keep your old cards open unless you’re paying high annual fees.
- Become an authorized user: If you can get someone with good credit (e.g., a family member or friend) to add you as an authorized user on their credit cards, it will improve your own credit history and offset any derogatory marks you have on your credit report. Make sure the card issuer will add the primary cardholder’s account history to your credit report, because becoming an authorized user only helps your credit if they do.
Getting a personal loan with bad credit: FAQ
Applying for a loan can be a confusing process and you’re bound to have a lot of questions. We’ve explained a few more things about applying for a bad-credit personal loan below.
What is considered bad credit?
What’s considered bad credit varies significantly. FICO and VantageScore each classify credit scores into different ranges, and lenders are free to set their own standards.
FICO and VantageScore’s classifications are given in the table below:
| FICO/VantageScore Rating | FICO Score Range | VantageScore Range |
|---|---|---|
| Exceptional/Excellent | 800–850 | 781–850 |
| Very Good/Good | 740–799 | 661–780 |
| Good/Fair | 670–739 | 601–660 |
| Fair/Poor | 580–669 | 500–600 |
| Poor/Very Poor | 300–579 | 300–499 |
What interest rate can I expect if I have bad credit?
Unfortunately, you should expect a higher interest rate if you have bad credit. You’ll probably pay a percentage in the high 20s to 30s.
Fortunately, you might be able to lower your interest rate if you secure your personal loan with collateral. Secured loans usually come with less interest than unsecured loans because they’re less risky for lenders. 3
What are the types of personal loans?
Broadly speaking, personal loans are divided into two types: secured and unsecured.
You use collateral like your home or car to guarantee a secured loan, whereas you don’t have to offer up anything to guarantee an unsecured loan. This is what makes them riskier for lenders. With an unsecured loan, unless your lender files a lawsuit and gets a court judgement against you, there’s nothing they can do to collect their debt if you stop making payments.
Where can I get a personal loan with bad credit?
Credit unions are generally the best organizations to get bad-credit personal loans from because they tend to have competitive interest rates. Additionally, assuming your credit union has a branch in your area, you can visit it in person and speak to one of their advisors face-to-face, which isn’t usually an option with online lenders.
In addition, credit unions provide payday alternative loans (PAL) for up to $1,000. The National Credit Union Administration (NCUA) has approved a ceiling of 28% for PAL loan APRs at 28% and capped application fees at $20, which makes them the best option for small short-term loans. 4 By comparison, the Consumer Financial Protection Bureau (CFPB) found that the average interest rate for a two-week payday loan was 400%. 5
You can also visit a bank or use an online platform (like the ones we mentioned at the start of this article) to get a personal loan with bad credit.
What can I do with my bad-credit personal loan?
Once your lender approves your application for a personal loan, you can use it for almost anything.
Most borrowers typically take out personal loans for:
- Emergencies
- Home repair
- Car repair
- Debt consolidation
- Medical bills
What you can’t do with a bad credit personal loan
There are some restrictions on what you can use a personal loan on. For instance, the Federal National Mortgages Association (Fannie Mae) won’t let you make a down payment on a conventional mortgage using a personal loan. 6 After all, a mortgage is a major commitment and lenders want to be sure you can afford to pay it off.
Many lenders also won’t let you use a personal loan to cover your business expenses or college tuition. That said, it’s worth contacting lenders directly because some don’t restrict what you can use their personal loans for.
