Landing a personal loan with a low credit score can be a challenge. Not only is it difficult to qualify for a loan with some lenders, but when you do qualify, you are likely to pay a higher-than-average interest rate and needless fees. That does not mean you're without options. Here, we'll tell you all you want to know about personal loans for bad credit and direct you to some of the better lenders. There is no reason to be discouraged about a bad credit score, though. You do have options. Here, we outline some of the best personal loans for bad credit.
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As of Mar. 01, 2022
| Lending Partner | Min. Credit Score | Loan Amounts | APR Range | Next Steps |
|---|---|---|---|---|
Upstart
Rating image, 4.0 out of 5 stars.
|
Min. Credit Score: 580 | Loan Amounts: $1,000 - $50,000 | APR Range: 4.81% - 35.99% | |
LendingPoint
Rating image, 4.5 out of 5 stars.
|
Min. Credit Score: 585 | Loan Amounts: $2,000- $36,500 | APR Range: 9.99% - 35.99% | |
FreedomPlus
Rating image, 4.5 out of 5 stars.
|
Min. Credit Score: 640 | Loan Amounts: $7,500 - $50,000 | APR Range: 7.99% - 29.99% | |
Avant
Rating image, 4.5 out of 5 stars.
|
Min. Credit Score: 580 | Loan Amounts: $2,000 - $35,000 | APR Range: 9.95% - 35.99% |
Disclaimers
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
Upstart
Rating image, 4.0 out of 5 stars.
4.0/5
Minimum Credit Score
580
Loan Amounts
$1,000 - $50,000
APR Range
4.81% - 35.99%
Term Length
36 or 60 months
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Upstart has flexible credit requirements and offers loans as small as $1,000. Well qualified borrowers can get a very low rate. On the downside, Upstart charges fees, including an origination fee and a late fee.
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- Accepts borrowers with low credit scores
- Wide range of loan amounts
- No prepayment penalty
- High upper-range interest rate
- High origination fees
LendingPoint
Rating image, 4.5 out of 5 stars.
4.5/5
Minimum Credit Score
585
Loan Amounts
$2,000- $36,500
APR Range
9.99% - 35.99%
Term Length
24 to 60 months
-
LendingPoint has flexible credit requirements. The maximum loan limit is a little smaller here, but so is the minimum. This could be a great stop for someone who needs a smaller loan, as well as someone still building their credit.
-
- No prepayment penalty
- Funds can arrive in as fast as one business day
- Instant approval notification
- Origination fees
- Short-term loan terms
FreedomPlus
Rating image, 4.5 out of 5 stars.
4.5/5
Minimum Credit Score
640
Loan Amounts
$7,500 - $50,000
APR Range
7.99% - 29.99%
Term Length
24 to 60 months
-
At FreedomPlus, use 85% of the loan funds to pay off other debt to qualify for a lower rate. The same is true if you have sufficient retirement savings or you add a co-borrower. These are great strategies to lower the cost of your loan even if you don't have excellent credit.
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- Cosigners accepted
- Special discounts for borrowers who want to pay down existing debt
- No prepayment penalty
- Difficult to qualify for lowest interest rate
- Costly origination fees
Avant
Rating image, 4.5 out of 5 stars.
4.5/5
Minimum Credit Score
580
Loan Amounts
$2,000 - $35,000
APR Range
9.95% - 35.99%
Term Length
24 to 60 months
-
Avant has flexible credit requirements. The minimum loan amount is $2,000 (lower than many other lenders). Avant doesn't offer the lowest interest rates we've seen, but you can apply with a credit score of just 580.
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- Lower credit score requirements
- Relatively low minimum loan amounts
- Fast funding
- No prepayment penalties
- Higher APRs
What to know about bad credit loans
A low credit score concerns lenders because they're afraid you will miss payments or abandon repayment altogether. That's why the interest rate charged for bad credit loans is higher (sometimes, considerably higher) than the interest rate charged for loans to people with good or excellent credit.
Once you fill out a loan application, a personal loan lender considers two primary things: Your credit score and your debt-to-income ratio (DTI).
- DTI: Your DTI refers to how much you owe compared to your monthly income. For example, if you earn $5,000 a month and your rent, car payment, student loan, and credit card payments amount to $2,000, your DTI would be 40%. The lower your DTI, the more confident a lender will be that you earn enough money to make all your payments on time.
- Credit score: This is a three-digit number between 300 and 850 that indicates how well you've dealt with credit in the past. If you've been late on payments, suffered a foreclosure, filed for bankruptcy, or have too much debt in relation to your income, your credit score may be low. Setting a minimum credit score helps a bank, credit union, or online lender establish the maximum level of risk they are willing to take.
If you don't have enough credit history for the scoring agency to give you a score, you'll also need to look at loans for bad credit.
Soft vs. hard credit check
Most personal loan lenders run a "soft" credit check to determine whether or not you're a good candidate for a loan. That's good news because a soft credit check has no impact on your credit score. It's not until you accept a loan offer that a "hard" credit check is run.
While a hard credit check will ding your credit score (possibly by a few points) your score will rebound quickly with regular payments. In fact, if you use the personal loan to pay off another existing debt, it's possible that you'll see a boost in your credit score almost immediately.
Predatory lenders
If you need a loan now, the best personal loans for bad credit are far better options than, for example, a payday loan. Payday lenders can charge APRs of up to 400% and trap borrowers into a vicious cycle of borrowing.
Even if you only plan to take out a small loan, working with a predatory lender is a dangerous financial proposition. These lenders are so dangerous that many states prohibit or heavily regulate them. Keep this in mind as you compare lenders.
If you're applying for a personal loan for people with bad credit, you will pay a higher APR than individuals with higher credit scores. That's because the lender is taking on more risk by lending to you. But, if used responsibly, a personal loan from a reputable lender might help you to improve your financial situation in the long run.
Advantages of a bad credit loan
Here are a few advantages of taking out a bad credit loan.
Clear loan payment plan.
From the day you take out a personal loan, you know precisely how much your monthly payments will be and when the loan will be paid off (also known as the repayment term). This information can help you plan for your financial future.
Debt consolidation.
You may be able to consolidate higher-interest debt into one loan, simplifying your life. In some cases, this can also lower your interest rate or even lower your monthly payment. This may mean stretching your payments over a longer period of time. But if, for example, you are facing bankruptcy, longer repayment terms on a personal loan might give you some breathing space.
Give you the money you need, quickly.
You have access to money when your water heater goes belly up or some other financial emergency creeps into your life. The process is fast, and funds are typically dispersed within one or two days.
Avoid unscrupulous lenders.
You can borrow from a reputable lender rather than deal with a payday lender or title loan company. These loans are designed in a way that makes them difficult to pay off by the due date. The bonus for the predatory lender is that you must then take out another unsecured loan to pay off the original loan. That means paying another set of expensive fees and a ridiculously high annual percentage rate.
Build your credit.
If you make your loan payments on time, a personal loan can help to build your credit. That may mean you qualify for a lower interest rate the next time you need a loan.
Even if your credit score isn't perfect, you still have loan options. No matter what a report from a credit bureau says about your payment history, you likely have access to a bad credit personal loan.
Disadvantages of personal loans for bad credit
Before making a financial decision, it's essential to be aware of the disadvantages. Here are a few potential downfalls that can impact even the best personal loans for bad credit.
You might not stop spending.
Say you use a personal loan to pay off higher-interest credit card debt. Once those cards have been paid off, nothing is keeping you from charging them back up. One disadvantage of a personal loan for bad credit is that you could end up with new credit card debt in addition to the consolidation loan.
The interest rate may be high.
It can be discouraging to compare the interest rate you will be charged for your loan to the interest charged for the same loan to someone with good credit. You can't do that. Make sure you have a solid plan for your loan, like getting rid of really high interest debt and building your credit score. Then, as long as you shop around for the best deal for your circumstances, you can stay focused on your own goals.
You don't make your monthly loan payment.
If you commit to a loan you can't afford, or your financial circumstances change, you may find yourself in a position where you can't meet your obligations. This would hit your credit score even harder and leave you in a worse position.
You may have to pay extra fees.
Many personal loans charge an origination fee between 1% and 8% of the loan. You may also find loans that charge prepayment penalties if you want to pay back your loan ahead of the loan term. Make sure you factor in all costs when comparing loans. The best bad credit loans have minimal fees.
You might have to put up collateral.
Depending on your lender, you might need to put up collateral to get loan approval. This is known as a "secured loan," and if you can't make your monthly payment, the lender can seize your collateral to help cover their costs. If you want to avoid this, look for an unsecured personal loan.
READ MORE: What Is a Personal Loan Origination Fee?
Alternatives to bad credit personal loans
One of the most interesting things about personal finance products is that there is no one-size-fits-all solution. We need to scan the landscape to figure out what works best for us, and personal loans are no exception. Here are some alternatives:
Personal savings account: Having poor credit does not necessarily mean that you can't put money away into an emergency fund, even if it's a little at a time. As irritating as it can be to be reminded of the importance of saving, the ability to take money from your savings account rather than take out a loan will almost always save you money. And if you don't need cash urgently, saving up is always a better option than taking on debt.
Cosigner: If you have someone in your life with strong credit, ask them to cosign your loan. A loan cosigned by someone with good or excellent credit will enjoy a better interest rate than one designed for a borrower with bad credit. Before asking someone to cosign, though, think long and hard. Remember that if you don't pay, the cosigner will be responsible for your debt. If there is any chance that you will not be able to keep up with your payments, you could be putting an important relationship in jeopardy.
When your credit improves, you may also be able to qualify for a balance transfer card. This would let you consolidate high-interest credit card debt onto a card with a 0% intro APR.
Is a personal loan for bad credit right for you?
Life can get messy, and your credit score can take a hit -- despite your best efforts. If you urgently need money while you are in the process of rebuilding your credit, a poor credit personal loan might be a good option.
Deciding whether a personal loan for bad credit is right for you is a matter of being clear about your financial goals and whether that loan will help you meet them. For example, if you are consolidating debt, taking out a loan may help to make your payments more manageable. The best loans for bad credit will improve your life, not add more stress.
Weigh whether you really need that money right now or if it can wait until you've improved your credit. Then crunch the numbers using several different scenarios, including a personal loan, bearing in mind what you can afford each month and how much it will cost you overall.
| Lending Partner | Min. Credit Score | Loan Amounts | APR Range | Best For |
|---|---|---|---|---|
| Upstart | 580 | $1,000 - $50,000 | 4.81% - 35.99% | Reducing high interest debt |
| LendingPoint | 585 | $2,000- $36,500 | 9.99% - 35.99% | Borrowers with poor credit scores |
| FreedomPlus | 640 | $7,500 - $50,000 | 7.99% - 29.99% | Diverse offerings |
| Avant | 580 | $2,000 - $35,000 | 9.95% - 35.99% | Borrowers with poor credit scores |
FAQs
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Typically, a credit score of 580 is the lowest score you can have and still get a loan. But the interest rate on such a loan can be prohibitively high.
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Yes, loans can help build credit if you pay all monthly payments in full and on time.
But it's also important to keep your debt-to-income ratio at 36% or below, and taking out a new loan may nudge your ratio higher than that.
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It takes lenders anywhere from one day to two weeks to fund the loan once you apply and are approved. If the speed at which the loan is funded is important, make sure to ask the lender before applying.
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A cosigner may help you qualify for a loan you would not otherwise be able to get. A cosigner with a good credit score can even help you snag a lower interest rate.
The important thing is to pay the loan as agreed. Otherwise, your cosigner is on the hook for it.
About the Author
Dana George has spent the last two decades as a business writer and news reporter. She considers herself lucky to love her job and appreciates the opportunity to learn something new every day.
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