Best Bad Credit Loans as of 2021

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.

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

Select your desired loan amount and loan purpose, your credit score range, and your state to see estimated annual percentage rates and loan terms.

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.

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 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:

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.

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.

The best loan for bad credit depends on many factors. When choosing a lender for a bad credit loan, consider these key criteria: