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Key takeaways
- Bad credit lenders may approve borrowers with credit scores as low as 580 or lower.
- Loans for bad credit usually come with high annual percentage rates (APRs) and high costs.
- Beware of lenders that guarantee approval or require upfront fees — these are signs of a scam.
Getting approved for a loan with bad credit can be a challenging experience. Fortunately, there are a variety of personal loans for bad credit to choose from if you can afford the higher interest rates and payments.
Before applying, learn how they work and what to expect in terms of borrowing costs. Some bad credit lenders are predatory, and knowing how to spot them could keep you from being taken advantage of.
What is a bad credit loan?
A bad credit loan is a loan that caters to borrowers with FICO scores below 580 — though some lenders consider credit scores into the low-600s bad. They are designed to serve as a funding option if you need a loan but have past credit issues.
How does a bad credit loan work?
The main difference between a bad credit personal loan and any other personal loan is the APRs and fees are usually much higher with bad credit. Otherwise, they work the same — you receive all your funds at once, and pay a fixed rate in monthly installments for a term ranging between one and seven years.
Where can you get a bad credit loan?
A variety of lenders offer bad credit personal loans including community banks, credit unions and online lenders.
- Online lenders. Many online lenders offer bad credit loans. Make sure you check their websites for minimum score requirements since they tend to vary from lender to lender.
- Credit unions. Since credit unions are member-owned institutions, they may be willing to offer you a loan even if you have less-than-stellar credit.
- Community banks. Banks usually have more stringent credit requirements, but you may still be able to get a personal loan with a community bank if you already have an account in good standing.
What to consider when getting a bad credit loan
Bad credit loans offer convenience for borrowers who may not be able to qualify for other options. However, there are a number of risks when you borrow a bad credit loan.
They will be more expensive because lenders will charge higher interest rates or — depending on the type of loan — more fees. You may also be limited in how much you can borrow and how long you have to repay your loan.
Bad credit loans cost more
Lenders charge higher interest rates to borrowers with bad credit because they’re viewed as more risky. The interest rate for a bad credit loan may be over 30 percent.
You may also be charged higher origination fees with bad credit which are usually deducted from the loan funds. Higher interest rates also mean higher monthly payments and more interest paid over the term of the loan.
You may not be able to borrow as much
Lenders may limit how much they’re willing to lend to a bad credit borrower compared to a good credit borrower. That’s because borrowers with a history of running into credit trouble are more likely to default, so lenders often cap the loan amounts to reduce their risk.
Your term will likely be shorter
You may not be eligible for a term of five or more years if you have a bad credit history. Bad credit loan lenders may prefer you pay your loan off faster to reduce the odds that you’ll default over a longer time period. Use a personal loan calculator to make sure the payment fits into your budget.
How do you avoid predatory bad credit loans?
People with poor credit are the most common targets for financial predators. Take extra precautions to avoid being a victim of predatory lending.
- Did the lender reach out to you unsolicited? You should always be the one starting contact with a lender, not the other way around. If you suddenly start getting calls about bad credit loans, you may be dealing with a scam.
- Is the lender asking for upfront fees? No legitimate personal loan lender will collect fees upfront. All of their fees should be collected when they fund your loan.
- Is the lender reputable? The lender should be registered to do business in your state, have a physical address and a secure website. Check the Consumer Financial Protection Bureau’s complaint database for any actions against the lender.
- Does the lender market “guaranteed approvals?” No lender can guarantee a loan approval without reviewing some of your financial information. If they do, they are probably not legit.
- Does the lender charge prepayment penalties? Check the terms of any bad credit loan with prepayment penalties. You don’t want to be stuck in a loan you can’t refinance without paying a hefty fee if your credit improves in the future.
- Do you feel pressured to accept the loan? Never, ever take a bad credit loan out because a salesperson pressures you to do so. Any reputable company should share the benefits of the loan and show you how it can improve your financial situation. Strong-arm sales tactics are a red flag that you’re dealing with a predatory lender.
Bottom line
A bad credit personal loan should be part of a bigger strategy to improve your credit and finances. Talk to a credit counselor if you’re not sure about the loan program, and explore cheaper alternatives first. If you determine that it’s the best financing option for you, compare rates, terms and fees with as many lenders as possible to find the best deal.
FAQs
Bad credit loans are available for consumers with credit scores from about 550 to 629. Loans for bad credit are typically offered by online lenders, which provide streamlined application processes and fast funding.
What type of loan is easiest to get with bad credit? ›
Secured loans
With a secured loan, you'll have to offer your lender an asset as collateral, like a car, a home or even a savings account. Because secured loans require valuable collateral, they're often easier to obtain than unsecured loans and generally offer better rates, since the lender is at less risk.
What is the lowest credit score to get a loan? ›
Payment history is weighed the most heavily in determining your credit score, along with your total outstanding debt. Generally, borrowers need a credit score of at least 610 to 640 to even qualify for a personal loan. To qualify for a lender's lowest interest rate, borrowers typically need a score of at least 800.
Can I borrow money with a 500 credit score? ›
However, borrowers with 500 credit scores will have a better chance of approval with the following loan types: Secured personal loans: Secured personal loans require you to pledge collateral, such as a vehicle, savings account, collectible, piece of jewelry, or even the fixtures in your home.
Can I get a $5000 personal loan with bad credit? ›
Yes, you can get a $5,000 loan with bad credit if you have enough income to afford the monthly payments, but the loan is likely to have a high interest rate. Several lenders offer $5,000 personal loans for people with credit scores under 640, and a few may not even require a credit check at all.
How to borrow $500 quickly? ›
Where to get a $500 loan: 5 options and alternatives
- Cash advances. A cash advance is a short-term financing solution different from a personal loan. ...
- Personal loans. Not all lenders will approve personal loans for $500, as some require higher loan amounts. ...
- Credit card cash advance. ...
- Credit builder loans. ...
- Payday loans.
Hardship personal loans are a type of personal loan that is designed to help you overcome financial difficulties. This type of loan is generally offered by small banks and credit unions, and has lower interest rates, lower maximum loan amounts, and shorter repayment periods than standard personal loans.
Can you realistically get a loan with bad credit? ›
You may be eligible to get a bad credit personal loan with a score below 580. Personal loan lenders specializing in bad credit loans may scrutinize your income and employment history more closely.
Which bank gives a loan easily? ›
HDFC Bank offers pre-approved loans to customers in 10 seconds flat*. Non – HDFC Bank customers can get loans in 4 hours. If you've wondered how to get an instant loan, wonder no more.
How hard is it to get a $30,000 personal loan? ›
In general, lenders extend $30,000 loans to borrowers with good to excellent credit, which is typically 670 and higher. But there may be lenders who lend to borrowers with bad credit. If you're having difficulty qualifying, you may consider getting a cosigner or co-borrower to help you get approved for the loan.
The credit score you need to take out a $5,000 personal loan, or a loan of a different amount, ultimately depends on the lender. On average, you'll need a credit score of around 650 to be approved for a good interest rate on a personal loan.
What credit score is needed for a $10,000 loan? ›
To increase your chance of qualifying for a $10,000 unsecured loan, you should have a credit score of 600 or higher. Some lenders start their minimum credit score requirements at 600, however, there are some lenders that require a credit score in the high 600s or low 700s.
Can I borrow 2000 with bad credit? ›
If you have a low credit score – or you've never borrowed before so have little credit history – it could be more difficult to get a £2,000 loan. But it's not impossible. Specialist lenders offer loans for bad credit so you may find you are eligible even if you've had credit problems in the past.
How to get a loan when no one will approve you? ›
If you struggle to get approved for a personal loan or need a loan in a hurry, products like emergency loan and payday loans may be appealing. All may come with higher interest rates and shorter repayment timelines than a standard personal loan.
Can I get a 10k loan with a 500 credit score? ›
Your credit score can make or break your ability to get a $10,000 loan. Generally, it can be hard to meet personal loan requirements if your credit score is below 640. That doesn't mean that it's impossible, but you may need to stick to bad credit loans (which typically have higher APRs).
Is it possible to get a 50000 loan with bad credit? ›
Upstart allows borrowers to apply for up to $50,000 and has a minimum credit score requirement of 600. This makes it a bit more accessible to those who have a lower credit score but still need to borrow money.
What is the lowest credit score lenders will accept? ›
You'll typically need a credit score of 620 to finance a home purchase. However, some lenders may offer mortgage loans to borrowers with scores as low as 500. Whether you qualify for a specific loan type also depends on personal factors like your debt-to-income ratio (DTI), loan-to-value ratio (LTV) and income.
Can I borrow money with a bad credit score? ›
Some lenders cater to applicants with lower credit scores in the poor range (below 580) to help them borrow money for emergency expenses, a medical bill, debt consolidation and other financing needs.
