Bad credit loans: A guide to getting a personal loan with bad credit

Upgrade: Best overall bad credit loans

Why it made the list: Upgrade has a low minimum credit score requirement and low starting rates — a somewhat rare combination. These loans come with credit-building tools, flexible repayment terms and special features for debt consolidation and home improvement projects.

• Upgrade personal loan pros and cons

   

  Pros	Cons
  Multiple rate discounts. Secured and joint loans. Mobile app to manage loan payments. Direct payment to creditors with debt consolidation loans. Long repayment terms on home improvement loans.	Origination fee. No option to choose initial payment date.

• Upgrade’s borrowing requirements

   

  • Minimum credit score: 560. 

  • Minimum credit history: 1 account and 2 years.

  • Maximum debt-to-income ratio: 75%, including mortgage and the loan you’re applying for.

  • Minimum annual income: None.

Upstart: Best bad credit loans for thin credit

Why it made the list: Upstart is known for its advanced underwriting capabilities. The lender looks beyond traditional borrower information like credit and income and reviews alternative data, like education and work history, to qualify borrowers.

• Upstart personal loan pros and cons

   

  Pros	Cons
  Accepts borrowers new to credit. Fast funding. Option to change your payment date. Option to pre-qualify with a soft credit check. Seven-day customer service availability.	May charge origination fee. No joint, co-signed or secured loans. No mobile app to manage loan. Only two repayment term options.

• Upstart’s borrowing requirements

   

  • Minimum credit score: 300 in most states.

  • Minimum annual income: $12,000.

Universal Credit: Best bad credit loan with credit-building tools

Why it made the list: Universal Credit borrowers have access to a credit report summary, credit score simulator and personalized recommendations for borrowers to build credit. The lender is owned by Upgrade, but bad-credit borrowers may be more likely to get approved with Universal Credit.

• Universal Credit personal loan pros and cons

   

  Pros	Cons
  Direct payment to creditors with debt consolidation loans. Fast funding. Offers multiple rate discounts. Free credit score access.	Charges origination fee. Borrowers can choose from only two repayment term options.

• Universal Credit’s borrowing requirements

   

  • Minimum credit score: 560.

  • Minimum credit history: 1 account and 2 years.

  • Maximum debt-to-income ratio: 75%, including mortgage and the loan you’re applying for.

  • Minimum income requirement: None.

Avant: Best bad credit loan for fast funding

Why it made the list: Avant can approve a loan application within one business day and typically funds loans the day after approval. The lender requires a minimum credit score of 550 and a minimum monthly net income of $1,200.

• Avant personal loan pros and cons

   

  Pros	Cons
  Fast funding. Option to pre-qualify with a soft credit check. Mobile app to manage loan. Wide range of repayment term options. Seven-day customer service availability.	May charge an origination fee. No co-signed, joint or secured loans. No rate discounts.

• Avant’s borrowing requirements

   

  • Minimum credit score: 550. 

  • Minimum monthly net income: $1,200.

Best Egg: Best secured bad credit loans

Why it made the list: Best Egg accepts two types of collateral on its secured loans: a vehicle or a or a home fixture, such as built-in cabinets and shelving or bathroom lighting. A loan secured by a home fixture may be less risky than a auto- or home-secured loan because you won’t lose your entire house or vehicle if you fail to repay.

• Best Egg personal loan pros and cons

   

  Pros	Cons
  Option to pre-qualify with a soft credit check. Wide range of loan amounts. Secured loan options. Direct payment to creditors with debt consolidation loans. No late fees.	Origination fee. No rate discounts. No option to choose initial payment date. No mobile app to manage loan.

• Best Egg borrowing requirements

   

  • Minimum credit score: 600.

  • Minimum credit history: 2 years, 1 account. 

  • Minimum annual income: $3,500.

  • Minimum debt-to-income ratio: 40% or 65% including a mortgage.

How we chose the best bad credit loans

We compared more than a dozen lenders that require a minimum credit score of 620 or lower to choose the best personal loans for bad credit. Only lenders with APRs below 36% were considered for this list. Here are the other factors we considered.

• State availability.

• Credit score of average approved borrower.

• Income requirements.

• Hardship offerings.

• Flexibility in repayment terms.

• Co-signed, joint or secured loan offerings.

• Funding time.

What are bad credit loans?

A bad credit personal loan is for borrowers with low credit scores or thin credit histories. Lenders that offer bad credit loans may accept borrowers with good or excellent credit scores (690 or higher) but have underwriting that’s flexible enough to accept those with low scores, too. Loan amounts range from about $1,000 to $50,000 and annual percentage rates are capped at 36%.

How do bad credit personal loans work?

Like all personal loans, bad credit loans have fixed rates and are repaid in fixed monthly installments over a period of one to seven years. These loans typically aren’t backed by collateral — they’re unsecured.

Though you may qualify for a personal loan with bad credit, your rate will likely be on the high end of a lender’s range, and your approved loan amount may be smaller than what you request.

How to compare bad credit loans

Qualification requirements and cost are the most important features to consider when choosing a personal loan. Here are some tips to compare personal loans for bad credit.

1. Check the borrowing requirements

Bad-credit lenders consider many factors on a loan application, including:

• Credit score: If a lender has a minimum credit score requirement, you’ll need at least that score, but ideally a higher one, to qualify.

• Debt-to-income ratio: This is the percentage of your monthly income that goes to debt payments. Lenders typically like to see that you can cover your monthly bills, including any other loan or credit card payments, and have money left over after your new personal loan payment.

• Co-applicant and collateral: If the lender offers a co-signed or secured loan, the person or item you add to the application becomes a factor in deciding whether you qualify.

2. Review the annual percentage rate

A loan’s APR consists of the interest rate plus any fees a lender charges. Many bad-credit online lenders charge an origination fee — a percentage of the loan the lender takes from the loan amount — and it is included in the APR. The highest APR an affordable bad credit loan should have is 36%, according to most consumer advocates.

3. Calculate the monthly payments

Review your budget to determine what an affordable monthly payment would be. Then, use a personal loan calculator to see what rate and repayment term you’d need to get that monthly payment.

4. Compare other loan features

If you have two or more competitive bad credit loan offers, compare loan features like funding time, whether the lender provides credit-building assistance and if you’re allowed to change the payment date.

Pros and cons of personal loans for bad credit

A bad-credit loan can help you get through an emergency, consolidate other high-interest debt or make necessary home repairs, but consumers with poor credit frequently get the highest personal loan APRs and fees.

Review the pros and cons of bad-credit loans, and compare them with other ways to borrow money.

Pros

• Fast funding. Some lenders can approve a loan application instantly, while others may take a day or two. Once approved, funding can happen the same day or take a couple of days.

• Fixed, predictable payments. Unlike most credit cards and credit lines, personal loans usually have fixed interest rates, meaning you’ll have the same monthly payment for the full loan term.

• On-time loan payments build credit. Payment history is the biggest factor that determines your credit score, so paying on time can give you a big boost.

• Rates may be lower than credit cards and other high-interest loans. Though a low credit score often results in high personal loan rates, your rate may still be lower on a personal loan than some credit cards and other high-interest loans.

Cons

• Rates are often high. Bad-credit borrowers can expect an annual percentage rate on the high end of a lender’s range. Personal loan rates max out at 36%, and it‘s possible someone with a low score could get a 25% APR or higher.

• Consumers with the lowest credit scores may not qualify. Minimum credit scores among bad-credit lenders are often between 550 and 660. A score that meets the minimum requirement doesn’t guarantee approval, and those with scores below the requirement are unlikely to qualify.

• Collateral or a co-signer may be required. If you fail to qualify for a personal loan, the lender may suggest you add a co-signer or get a secured loan. These options may help you qualify, but late payments will put your collateral or co-signer’s credit at risk.

• Predatory lenders may seek out bad-credit borrowers. Predatory lenders — those that use deceptive practices to provide potentially harmful loans — may seek out consumers with low credit scores who fear they won’t qualify elsewhere. (More on spotting a personal loan scam below.)

What is the best loan company for bad credit?

No single lender is best for all bad-credit borrowers. The best bad-credit lender offers the lowest annual percentage rate and monthly payments that fit your budget. Some bad-credit lenders have special features for debt consolidation, provide flexible payment options or offer credit-building tools.

Where to get a personal loan for bad credit

Online: Some online lenders offer personal loans specifically for bad-credit borrowers. These lenders may consider information beyond your credit and income to qualify you, though those are still major factors in a loan decision.

Credit unions: Credit unions rely more on traditional information like credit and income but may also consider your history as a member. A member in good standing with the credit union may qualify for a personal loan despite a low credit score.

Banks: Banks base loan decisions primarily on your credit score, history and income. Major banks are less flexible on qualification requirements, but having a good relationship with a local bank may help you qualify. Even if your bank or credit union doesn’t have pre-qualification, you can bring in a pre-qualified offer and ask if it will beat that offer.

Bad credit loan rates

The average personal loan rate for a bad-credit borrower was 22.04% in October 2023, according to aggregate, anonymized data from Finlo.net lending marketplace. Bad-credit borrowers received rates from 19.11% to 23.30% last month.

Here are the average personal loan rates for each credit score range.

Bad credit loan fees

One of the most common bad credit loan fees is an origination fee, which is 1% to 10% of the loan amount. The fee is included in your APR, but a lender may take it before sending you the funds, effectively reducing your loan amount, or add it to your monthly payment.

A two-year, $10,000 loan with a 20% interest rate and a 5% origination fee has an APR of 25.14%. If the lender takes the origination fee before sending you the loan, you’d receive $9,500 and the lender would keep $500.

Lenders also usually charge late payment and non-sufficient funds fees.

Personal loans for bad credit: Compare costs

How to get a personal loan for bad credit

Here are the steps to get a bad credit personal loan:

1. Check your credit

Review your credit reports from the three major credit bureaus to ensure the information is accurate and up to date. Fixing errors on your report before applying may improve your chances of qualifying. You can get your credit reports for free at AnnualCreditReport.com.

2. Pre-qualify to compare offers

Many lenders let you pre-qualify online to preview potential loan offers. You provide some information about yourself, like your income, desired loan amount and loan purpose, and the lender does a soft credit pull to determine your eligibility. No two lenders have the same borrowing requirements, so it pays to pre-qualify with multiple lenders.

3. Submit an application

Once you’ve found the right lender, gather documents, including proof of income and employment, a government-issued ID and bank statements. Most lenders have online personal loan applications, but your local bank or credit union may require an in-person application. The lender will do a hard credit check when you apply, causing your score to temporarily drop. Expect a decision within a few days.

4. Add the new loan payment to your budget

On-time loan payments can build your credit. Add loan payments to your monthly budget and set up autopay to avoid missing any.

Tips to qualify for a bad credit loan

Bad-credit borrowers may need to put in extra work to boost their chances of qualifying or lower their rate. Here are some ways to enhance your personal loan application.

• Add collateral. Some lenders offer secured personal loans, which require you to provide collateral in order to borrow the money at a lower rate than an unsecured loan would have. Online lenders typically accept a vehicle as collateral, while banks and credit unions accept a savings or investment account. If you miss too many payments, the lender can take the collateral.

• Add a co-applicant. Co-signed and joint personal loans let you add someone with better credit and income to your application to get approved or lower your rate. A co-signer or co-borrower agrees to repay the loan if you can’t, but a co-borrower has access to the loan funds while a co-signer does not. Your co-applicant must make the loan payments if you fail to.

• Include all your income. Many lenders accept income from employment, alimony, retirement, child support and social security payments. Showing a lender that you have enough income to make the payments is crucial to approval, so be sure to include all sources of income when you apply.

• Don’t ask for more than you need. Asking for a smaller loan won’t guarantee approval, but the larger your requested loan, the riskier it may look to a lender. Requesting a loan amount you can comfortably repay goes a long way with a lender.

Can you get a personal loan with bad credit?

Bad credit may not automatically disqualify you from getting a personal loan, but you’re likely to get a high rate.

Keep in mind that while credit is a top factor in determining your eligibility and rate, it’s not the only one lenders consider on an application.

What is a bad credit score?

A bad credit score is generally from 300 to 629, but individual lenders may define bad credit differently. Many lenders use the credit scoring company FICO, which defines poor credit as below 580. Some lenders use FICO’s competitor, VantageScore, which puts “subprime” scores between 300 and 600.

Bad-credit loans are intended for borrowers with scores on the high end of “bad” (think 560 and up). The lowest scores (below 500) are unlikely to qualify.

How to improve your credit

If a low score is keeping you from qualifying for a personal loan or getting the rate you want, here are three tips to build credit quickly.

1. Pay down credit cards and other debts. There are two benefits to paying down debt: You’ll build positive payment history, which accounts for 35% of your FICO score, and you’ll lower your credit utilization. 

2. Ask for a higher credit limit. Requesting a higher credit limit is another way to lower your credit utilization. This can usually be done online or over the phone, and it’s a good idea to ask if your limit can be raised without a hard credit pull, which temporarily lowers your score by a few points.

3. Become an authorized user on someone’s credit card account. Being an authorized user on a friend or relative’s credit card gives you the benefit of that person’s payment history. This option is most effective if you’re added to an account with a high credit limit and a history of on-time payments.

Types of bad credit loans

Alternatives to personal loans for bad credit

A personal loan may not be the right option if you have bad credit. Even if you’re approved, you’ll likely pay a high APR. Consider these alternatives before borrowing.

Family loan

Borrow from a trusted friend or family member. It may help to have a plan for interest, repayment terms and payment frequency in mind when you ask for the loan. Then you and the lender can formalize the details in a family loan agreement.

Payment plan for bills

If you’re struggling to cover rent, utilities or credit card payments, consider asking for an extension or getting on a hardship program. Your credit card issuer, mortgage lender or utility company’s website may have an online application for hardship assistance, but you may have to ask a landlord directly.

Medical bill assistance

Medical bill negotiators, medical credit cards or a payment plan with your provider may help take some of the stress and urgency out of paying a steep medical bill. These options may come with fees or interest, so compare medical bill payment options to find the most affordable one.

How to spot a bad credit loan scam

The lenders on this page offer legitimate personal loans. Here are a few red flags to look out for when you’re shopping for a personal loan for bad credit.

• No credit check or guaranteed approval. Reputable lenders dig into your finances, including your credit and income, to determine whether you can repay the loan. A lender that doesn’t do this may charge exorbitant rates that could land you in a debt trap.

• No state license. The Federal Trade Commission requires lenders to register in states where they do business. Many lenders list state licenses on their websites.

• Asking for a gift card. No legitimate lender asks for a gift card in exchange for a loan. If you’re asked to provide a gift card — even by someone who says they work for a popular lender — consider it a scam.

• No fee disclosures. The Truth in Lending Act requires lenders to disclose the loan’s APR, total interest and total repayment amount before you sign a loan agreement. Ask to see this information before signing and walk away if the lender refuses.