Borrowing money when you have bad credit can be stressful and limit your loan options. But a bad credit loans rating isn’t a dead end. Even if you can’t qualify for the best loan terms, there are loans for bad credit.
The consequence of bad credit is that you could need to make trade-offs and compromises. For example, personal loans for bad credit can offer access to funds, but that access might come with a high interest rate and other restrictions that don’t apply to borrowers with a good credit score.
This guide will help you understand how bad credit loans work, how to apply for and get a loan, and how to choose the best bad credit lender.
What Are the Best Bad Credit Loan Companies of 2021?
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Lender | Learn More | APR | Max. Loan Amount | Min. Credit Score |
|---|---|---|---|---|
 | 2.99% to 12.99% with autopay | Cost of attendance, minus aid | Mid 600s | |
 | 2.99% to 12.78% with autopay* | No maximum | 650 | |
 | 3.50% to 12.60% with autopay | Cost of attendance, minus aid | Mid 600s | |
 | 3.99% to 8.49% with autopay | Cost of attendance, minus aid | Not disclosed | |
 | 3.74% to 10.74% with autopay | $500,000 | Not disclosed |
Best for instant approval
Before You Apply
- Loan types: Undergraduate, Graduate, Parent Loan, Refinance, MBA, Law School, Dental School, Medical School, International Student Loan.
- Minimum FICO credit score: Not disclosed.
- Co-signer required: Yes.
- Better Business Bureau rating: A+.
Best Features
Rapid application and approval process.
Career loan programs with a completion incentive available.
College Ave Student Loans have no origination fees.
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Best for fair credit
Before You Apply
- Loan types: Undergraduate, Graduate, Parent Loans, Refinance, MBA, Law School, Medical School.
- Minimum FICO credit score: 650.
- Co-signer required: No.
- Better Business Bureau rating: A.
Best Features
There are no origination, application or late fees.
You can choose your monthly payment and loan term length.
You can use a co-signer on undergraduate or graduate student loans, and student loan refinancing is available.
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Best for product availability
Before You Apply
- Loan types: Undergraduate, Parent Loan, Graduate, MBA, Medical School, Dental School, Law School.
- Minimum FICO credit score: Mid 600s.
- Co-signer required: No.
- Better Business Bureau rating: A+.
Best Features
Student loans completely cover school-certified expenses – tuition, fees, books, housing, meals, travel and a laptop.
Customer service is 100% U.S.-based.
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Best for minimal fees
Before You Apply
- Loan types: Undergraduate, Graduate, Refinance.
- Minimum FICO credit score: Not disclosed
- Co-signer required: No.
- Better Business Bureau rating: A.
Best Features
Borrowers can receive a 0.25 percentage point interest rate discount by signing up for automatic monthly payments from a checking or savings account.
Co-signers are not required but may improve your chances of approval or help you obtain better terms that could save you money.
LendKey does not charge origination or application fees.
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Best for forbearance options
You need a co-signer for undergraduate and graduate loans, but not for medical, dental and MBA loans. It can take from five days to three weeks for your school to confirm your loan amount and enrollment status after CommonBond approves your loan. Fees are generally low, though there is an origination fee for MBA, dental and medical loans.
Before You Apply
- Loan types: Undergraduate, Graduate, Refinance, MBA, Dental School, Medical School.
- Minimum FICO credit score: Not disclosed.
- Co-signer required: Yes.
- Better Business Bureau rating: B+.
Best Features
Loans are available from $1,000.
Borrowers can defer payments while in school or elect to make up to full payments each month, depending on their loan type.
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What Is the Best Interest Rate on a Personal Loan?
Even if you have bad credit, you could save by shopping around for the best interest rate on a personal loan. Compare bad credit personal loan offers with national average trends for personal loans to know whether you’ve found a good deal.
*Rate as of August. 12, 2021
Personal Loan Finder
Select your desired loan amount and loan purpose, your credit score range, and your state to see estimated annual percentage rates and loan terms.
What Is a Bad Credit Loan?
Loans may be available for people with bad credit scores or no credit. Different lenders have different credit criteria, but it may be possible to get a personal loan with a FICO credit score in or below the fair range (580-669). Riskier types of loans, such as payday loans and alternative installment loans, are also available to borrowers with low credit scores or no credit.
The weaker your credit score, the greater the risk to the lender, which is why bad credit loans can be costly. Generally, you’ll pay higher interest rates and receive shorter repayment terms than people with good credit scores.
Here is one example for comparison. If you took out a $10,000 loan at an APR of 25% and repaid it over three years, you would pay about $398 monthly and about $4,300 in total interest. With better credit, you could qualify for a lower APR – say 11% on the same three-year $10,000 personal loan. You would pay about $327 monthly and less than $1,800 in total interest. Having a higher credit score would save you more than $2,500 in this instance, making it less expensive to take out a loan for debt consolidation, home improvements, car repairs, unexpected expenses or something else.
What Types of Loans Can You Get With Bad Credit?
Even with bad credit, you can choose from many types of loans. Some present more risk to borrowers than others. Here are some of your options:
Personal loans for bad credit
Personal loans have fixed rates as high as about 36%, and they are generally safer than options such as payday loans, auto title loans or alternative installment loans. You can typically repay loans in set amounts over a few years. Lenders may offer small and large personal loans, so check the lender’s minimum loan amount to make sure it meets your needs.
Generally, this type of loan is unsecured, which means you don’t have to put down collateral. Collateral is a valuable asset, such as your car or savings account, that the lender can claim if you default on a loan.
With a poor or fair FICO credit score, it can be difficult to qualify for a standard personal loan. If you have bad credit, you may want to consider taking out a secured personal loan that uses a valuable asset as collateral. Although secured loans put your assets on the line, you are more likely to get approved and could receive a better APR. Some lenders also allow co-signers on personal loans, which can help riskier borrowers get approved.
A payday loan is a small, short-term loan intended to cover expenses until your next payday, when you can pay it back. Payday loans have a reputation as predatory, with lenders targeting consumers with poor credit scores and few options who need quick access to cash.
Loan limits, often $500, are typically much lower than personal loan limits, and payday loans usually have to be paid back in weeks, not years. Fees can be very high, often equivalent to triple-digit APRs.
If you can’t repay the loan in full by the end of the term, you may be able to extend your loan by paying more fees. Some payday loans ultimately cost more in interest and fees than the original loan amount.
Alternative installment loans
Alternative installment loans may look a lot like standard personal loans: The lender sends you funds and you follow a repayment schedule to pay the loan back. But they can also resemble payday loans because they are easier to obtain for consumers with bad credit and tend to charge high interest rates, often well above 100%.
Generally, alternative installment loans have fixed monthly payments and can have repayment terms as short as several months or as long as a few years. But you should expect steep interest rates when you turn to alternative installment loans.
If you’re considering a loan because you can’t afford your educational expenses, you should make sure to consider student loans. You’ll generally get the most value out of federal student loans, but even private loans can provide better terms for students than other loan options for consumers with below-average credit.
Student loans tend to offer a wider range of repayment terms, ranging from five to 20 years for private loans. You can qualify for a federal student loan for yourself without a credit check, and you may be able to add a co-signer to help you qualify for a private student loan.
Credit card cash advances
Like payday loans, credit card cash advances can get you quick access to cash, but they come with a high price. When you get a cash advance, you are taking out a loan from your credit card. You’ll often be on the hook for a cash advance fee of at least $10, and the loan will come with an interest rate higher than what you’re charged for purchases.
A credit card cash advance can be helpful if you pay it off quickly, but advances can also harm your credit score by bringing up your card’s balance.
U.S. News Survey: Many Consumers Don’t Know How Loans Work
U.S. News surveyed consumers in August 2020 about financial literacy, or their ability to manage money: in this case, loans. Even with good credit, qualifying for a loan can be tricky, thanks to the economic crisis caused by the pandemic.
The survey revealed that, whether people have bad credit or good credit, they may not know how to shop around for loans or avoid hiccups such as missing payments. Notable among the results:
- Top purposes for personal loans are making major purchases or paying down debt.
- Most consumers said they don’t need to borrow money because of COVID-19 hardship. Those who do need to borrow said 0% APR credit cards, personal loans and home equity loans are the best options.
- Many consumers said they aren’t clear on how deferred interest loans work.
- Most consumers don’t realize the potential damage of missing a loan payment.
- About 1 in 5 consumers said they’ve taken out a loan to pay off debt.
- Most consumers said they don’t think payday loans are a good idea.
Consumers identified making a major purchase as the top purpose for getting a personal loan. Other reasons included paying down debts and making home repairs.
The best ways to borrow money to make ends meet during the COVID-19 crisis are 0% APR credit cards, personal loans and home equity loans, survey respondents said. But 62% said they don’t need to borrow money.
More than half of consumers surveyed said they don’t know what happens when you don’t pay a deferred interest loan during the promotional 0% interest period. About 16% said they think interest applies only to the unpaid balance, and 4% said the interest rate stays at 0%.
A little less than 25% of people said they know that backdated interest applies when you don’t pay off a deferred interest loan during the promotional period.
Most consumers said they didn’t realize that missing just one loan payment could hurt your credit score if you aren’t enrolled in a hardship program.
About 1 in 5 consumers said they’ve taken out a loan to pay off debt.
About half of consumers don’t know whether you can get a loan if you don’t have a job. Getting approved for a loan when you are unemployed is possible, but many lenders will require a creditworthy co-signer.
Few consumers said they think payday loans are a good idea.
How Can You Get a Loan With Bad Credit?
You can qualify for a loan with bad credit, but you’ll get the best deal if you do some homework. Start by checking your credit report, budgeting for your loan payment and shopping around for the best terms.
- Check your credit report. You can get a free credit report from each of the three major credit bureaus at AnnualCreditReport.com. Use your report to identify ways to improve your credit, such as by paying off a debt in collection or paying down a high credit card balance. Also check for errors that could be lowering your score. Rod Griffin, senior director of public education and advocacy for Experian, one of the three major credit bureaus, recommends checking your credit report and score at least three months before applying for a loan.
- Budget your loan repayment. Figure out how much you need to borrow, and come up with a plan for your payments that fits into your budget. Your loan amount, repayment period, APR and any fees the lender charges will help determine your monthly payment. The longer you have to repay the loan, the more you will pay in interest but the lower your monthly payment will be.
- Shop around for the best interest rate. Lenders often use a soft credit inquiry to grant preapproval or prequalification for loans. Soft inquiries don’t affect your credit score, and applying for preapproval is a good way to compare interest rates and terms before you apply. Applying for a loan may trigger a hard credit inquiry, which can affect your credit.
- Beware of scams. Spotting a bad credit loan scam can be difficult, but look out for some key signs. Scammers often require upfront fees, ignore your credit record, pressure you to take out a loan, ask you to pay with a prepaid card or aren’t licensed to make loans in your state.
- Repay the loan. After your lender disburses the loan funds, you will become responsible for making payments. It’s important to make on-time payments to avoid paying late fees and harming your credit score. You’ll also owe more interest if you delay payments. “If you miss a payment or due date, credit profiles will suffer,” says Joseph Toms, president and chief investment officer of Freedom Financial Network, a debt management business. “That can reduce the consumer’s ability to get credit in the future. Before applying, be sure you can make the payment every month.”
What Should You Consider When Choosing a Bad Credit Loan Company?
The best loan for bad credit depends on many factors. When choosing a lender for a bad credit loan, consider these key criteria:
- Eligibility requirements, including credit history and employment. The credit score you need to get a loan will depend on the lender and the type of loan you want, with higher scores increasing your options. Lenders may also consider parts of your background besides credit, including income and debt-to-income ratio. “Traditional credit data does not necessarily account for your complete financial profile and ability to pay debts,” Toms says. If you can’t qualify for a loan with your own credit or income, some lenders allow you to add a co-signer.
- Interest rates and types. Make sure you’re comparing interest rates when considering which loan is the best. The higher your credit score, the lower your interest rate will most likely be. Personal loans typically come with fixed interest rates, which means your rate remains the same for the duration of your loan. Private student lenders often offer fixed and variable interest rate options. Variable-rate loans have interest rates that can fluctuate in tandem with an index rate.
- Loan terms. Before accepting a loan, make sure to review its terms, including APR, loan period and loan restrictions. You should be comfortable with the terms and confident you can make on-time payments.
- Fees and penalties. Origination, late, returned payment and other fees may apply, depending on your lender and in some cases your state. Some lenders don’t charge origination fees to make a loan, while others may charge a percentage of the loan amount. LendingClub, for instance, charges an origination fee of between 3% and 6% for personal loans. If your lender charges for late payments, you may have a grace period of up to 15 days before the lender charges a fee.
- Repayment options. Lenders usually offer multiple payment options, including online, check and automatic payments. Automatic payments might come with a discount. Some lenders also provide flexibility with your payment date, so you can change it to a date that works best for you.
- Customer service ratings and reviews. Getting a loan is a big commitment, so make some time to read lender reviews before you sign on the dotted line. It’s also a good idea to search the Consumer Financial Protection Bureau’s Consumer Complaint Database to learn about common gripes consumers have about lenders.
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