Getting a Personal Loan with Bad Credit - What Are Your Options?
Falling behind on your bills because of unexpected expenses or having too many hard searches on your credit file are just some of the many things that can lead to bad credit or low credit scores.
So what do you do when all the major lenders consider you a high risk, and you need a loan or a cash advance right now? If you’re asking how to get a loan with bad credit, you probably already know that your options are somewhat limited, and online lenders are probably your best bet. But that doesn’t mean there is no hope of getting reasonable loan terms. Check out our guide to learn more.
What is a Bad Credit Score?
Before we share our tips and tricks on how to take out a loan with a less-than-perfect credit score, let’s first define what exactly constitutes a poor score. At first glance, you might think that there isn’t all that much to it. However, there are a few things that may confuse you, which is why we’ll go over them.
While looking for bad credit loans, you’ll notice that loan companies usually use one of these two credit scoring systems: FICO and VantageScore.
The FICO score was created by the Fair Isaac Corporation, a data analysis company that specializes in credit scoring services. Meanwhile, VantageScore is a credit scoring model developed by the three major credit bureaus (Equifax, Experian, and TransUnion). Here are their credit scoring ranges:
According to these models, anything below 630 is considered a bad credit score. Keep in mind that some lenders prefer to use their own scoring system, but this should give you a basic idea of what the minimum credit score requirement will be for each tier.
Can You Get a Loan with Bad Credit?
Sometimes it may be difficult to get a loan with a bad credit score, but it’s far from impossible. When getting one of these loans you might think it’s unfair that you have to settle for a higher-than-average APR, but try to look at it from the perspective of your potential lender.
A credit score represents the likelihood of you paying back the loan – the lower it is, the higher the risk for the person or company providing the funds. Therefore, a higher APR serves as a safety net for bad credit lenders, allowing them to recoup at least a part of the cost of that loan early on.
Unfortunately, finding a reasonable APR (especially on unsecured personal loans) isn’t the only hurdle you’ll have to overcome if you have poor credit history. Usually, lenders will want to inspect your employment status, income, debts, and assets.
Traditional banks tend to have stricter criteria than online-only lenders, so you might want to begin your search there. No-credit-check loans are probably your best option as hard credit inquiries stay on your credit report and thus reduce your credit score for a few months.
Ways to Get a Loan with Bad Credit
This part of our guide offers several useful tips that are sure to better your chances of having your loan application approved. We’ve divided our recommendations into two sections: the first is primarily aimed at those planning their next steps in life, and the second is more suited for people who need quick access to loan funds.
Even though it may seem tempting to just skip over the part that doesn’t seem relevant to your current circumstances, we suggest that you read our entire guide, as it’s always best to arm yourself with as much information as you can before you start browsing through bad credit loans online.
Bad Credit Score Improvements
Before you do anything else, you should take some time to assess your financial situation and see if you can increase your credit score. Here’s a list of things you can do:
Review Your Credit Reports
The three main credit bureaus aren’t perfect, which is why you should go over your credit reports regularly and dispute any inaccuracies that you discover. Know that you’re entitled to a free credit report once a year from Equifax, Experian, and TransUnion.
Pay Your Bills on Time
To secure a bad credit loan, you’ll need to make an effort to prove your creditworthiness to likely lenders. The best way to do that is to show them that you can handle money competently and handle all required monthly payments without missing the deadlines.
Manage Your Credit Cards
These are the most important pieces of advice that we could give you when it comes to your credit card usage:
- Reduce your credit card balance. Try to keep it below 30% of your credit card limit, and watch your debt-to-income ratio.
- Don't close old credit cards. Your odds of obtaining loans with bad credit are much better with a long credit history, plus it’s harder to keep your credit card balance at less than 30% if your combined credit card limit is reduced.
- Do some debt consolidation. Consider grouping all of your balances into one amount that’s easy to keep track of (credit cards with a 0% introductory APR period can be used to consolidate debt, as long as you can manage to do it before the promotional APR period ends).
- Hire a credit repair company. This isn’t something that everyone can afford, but if you’re able to set aside a few dollars for credit repair services, you might be surprised at how effective they can be at boosting your credit score. Just make sure that you pick a trustworthy company.
Overcoming Bad Credit
There’s no such thing as bad credit loans with guaranteed approval. So, what do you do when you’ve been turned down by many lenders and have no time to improve your credit score? Well, a couple of things:
- Ask for an interview. Sometimes personal loan lenders, bank representatives, or credit union loan officers are willing to hear you out in person. This helps them put a face to the application. Remember that you’re not there to beg but to convince them that you’re creditworthy and will use the loan proceeds well.
- Prepare documents. Our second suggestion is closely related to the abovementioned one. To get lenders to consider you for one of their loans for bad credit, you need proof that you’re a better candidate than one might think based on your credit score.
- Produce documents that show the lender you have a steady income flowing into your bank account or own a home and a car that can serve as collateral. It’s also helpful if you have any savings or other resources that you can use to pay back your loan.
- Stability is another important factor, which is why it’s good to present official records that show you don’t move around a lot and that you’re capable of keeping the same job for several years. You never know what might tip the scales in your favor. Your objective is to show that the monthly payment for your loan won’t be a problem at all.
- Find a co-signer. Getting a loan with bad credit can be far less difficult with a co-signer, especially if you’re going for an unsecured loan. You can ask a relative or a friend to take on this responsibility, and if their credit score is high enough, you could even qualify for a loan with a relatively low APR and a reasonable repayment term.
Before you start creating lists of possible candidates, bear in mind that your co-signer isn’t just lending you their good reputation but is obligated to pay off your debt if you’re unable to do so yourself.
Loan Options for Bad Credit
Loans for people with bad credit are personal loans – loans with shorter terms, which can be used for anything from home renovations to medical emergencies and debt repayments. They can be either secured or unsecured loans, depending on the loan agreement.
The difference is that secured loans are backed by some form of collateral. As such, it’s usually easier to get a secured loan because the lender can seize the asset you use as collateral in case you fail to cover your debt. An added bonus is that secured personal loans also come with lower interest rates and possibly higher loan amounts.
These advantages make them the best types of bad credit personal loans you can find, as long as you have something as collateral. Home equity loans are another type of secured loan, and auto loans often use the vehicle as collateral, too.
Another solution is payday loans, small loans with an extremely short repayment period. These quick loans may seem tempting, as they give the money right away, and you don’t have to worry about origination fees or prepayment penalties. Even so, you should try to avoid them at all costs, seeing as payday lenders charge extremely high interest rates.
Bad credit loan companies love a personal loan with bad terms, and these short-term loans are objectively worse than most personal loan rates you’ll run into. We’re not saying you absolutely cannot make good use of them as debt consolidation loans, but just be aware of bad credit loan scams and always check the interest rate.
Where to Get a Loan?
Instead of going to a bank or credit union, which are often hesitant to give even minimum loan amounts to people with bad credit scores, you should look at online personal loans. Online loans for bad credit are approved quickly, and most of these lenders don’t charge a loan origination fee or a prepayment penalty.
Peer-to-peer platforms offer a similar option for a debt consolidation loan. The only difference is that you won’t be receiving your funds from an institution but from an individual or a group of people. All you have to do is post a loan listing and wait for an investor to pick you.
Credit unions should be on your radar as well. These are financial cooperatives that provide their members with traditional banking services. For the most part, they aren't hard to join and provide very competitive interest rates - it may just be the best personal loan option you’ll find, actually.
The best part is that some are willing to give out poor credit loans to those that seem serious about paying them back despite their short credit history or poor financial decisions in the past.
As a last resort, you could ask your family or friends to help you out. After all, they’re sure to give you the best loan rates, and you can probably expect guaranteed loan approval. That said, we don’t recommend this step. Borrowing money from people that are close to you can ruin precious relationships and should always be the very last option you consider.
Frequently Asked Questions
Which loan company is best for bad credit?
It’s hard to pick just one company and say they have the best personal loans for bad credit, as your choice will depend on multiple factors, such as the loan amount, your risk tolerance, exact credit score, repayment terms you’re comfortable with, and so on. Some reliable companies to consider would be Avant, Best Egg, Lending Club, or Prosper.
Can you get a personal loan with a credit score of 550?
It’s possible to take out a personal loan with a score of 550, but it’s not easy, meaning that you’ll probably have to apply several times with different lenders. Know that a bad credit personal loan will have a high APR and will most likely be small. So, before you start sending in those applications, try increasing your credit score.
What is the easiest loan to get approved for?
A secured personal loan is among the easiest ones to get as it reduces the risk for your lender. They can use the collateral you provide to reduce their losses in the event that you default on your loan. Another highly accessible option is a bad credit payday loan, but keep in mind that payday alternative loans have high interest rates and very short repayment terms.
How can you borrow money if you have bad credit?
Online-only lending companies, credit unions, and peer-to-peer platforms will usually accept applications from borrowers with bad credit scores. To improve your odds of qualifying for a loan, you can ask someone to be your co-signer.
If you don’t wish to do that, you can prepare any documents you have that prove your creditworthiness (bank and savings account data, information about your salary or collateral, etc.) and request an in-person interview with a bank representative to try and persuade them to take you on as a client. Read our guide on how to get a loan with bad credit for more details.
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.
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