Best Loans for Bad Credit of January 2022
Contrary to what many people think, there are loans available to individuals with bad credit. For this reason, it’s important to compare all options rather than turn to a predatory payday lender when unexpected expenses arise. In many cases, a more affordable solution may be available, even if you have less-than-perfect credit.
We selected Upgrade as the overall best personal loan for bad credit because people with credit scores as low as 550 could get approved for a loan with a repayment period of up to 84 months. Upgrade offers loans up to $50,000, and its APR range of 5.94% to 35.97% is competitive. You may be able to get rates at the lower end of the range if you’re approved with a co-applicant who has excellent credit, enroll in auto-pay, and use proceeds to directly repay existing debt. These are best-in-class features.
Guide for Choosing the Best Personal Loans for Bad Credit
What Are Loans for Bad Credit?
Bad credit loans are financing options offered to individuals with low credit scores of 669 or less. Although there are many types of bad credit loans, the most common is an unsecured personal loan. Unsecured personal loans for bad credit often carry a fixed interest rate and monthly repayment terms of no more than two to seven years. Plus, this type of bad credit loan is often quick to get, as many lenders offer next-day funding and some even often same-day funding.
As you’re shopping for a personal loan for bad credit, keep in mind that the lowest rates are reserved for people with good-to-excellent credit scores. If you want to get a better rate, work on improving your credit score. You can also potentially apply with a co-signer or co-borrower who has good credit to get a better rate. Plus, some lenders will allow you to pledge collateral (like a cash deposit) to receive a lower interest rate.
Do You Qualify for a Personal Loan for Bad Credit?
To qualify for a personal loan with bad credit, you’ll likely need to meet certain criteria. Some of the most important things that factor into whether you’ll qualify for a bad credit loan are:
- Your current credit history shows your problems are resolved: Lenders are more willing to overlook a bad credit score if your current credit history shows you’ve fixed the problems. This usually means that you can’t have any debt that’s currently delinquent, any judgments are paid (e.g., tax liens), and that bankruptcies are resolved. The goal is to ensure your old issues won’t prohibit you from repaying the new loan.
- You have enough income to comfortably repay the debt: Before you can get a new loan, most lenders will want to make sure you have enough income to repay it. They’ll determine this by looking at your debt-to-income ratio. It’s also a good idea to review your budget to see if you can comfortably make the monthly payment before you proceed.
- Loan funds will help improve your overall financial situation: The other thing that lenders consider is whether the loan may help improve your credit. For example, getting a loan to consolidate existing debt into a single fixed-rate loan with a lower interest rate could help you pay off your balance quicker. Plus, you’ll save money on interest charges.
If you can’t qualify for a personal loan on your own, then there are other options. Some lenders will allow you to apply with a co-signer or co-applicant. This can be a good thing because you’ll be able to use their good credit to qualify. However, if you do this, make sure you repay the loan as agreed or you run the risk of ruining your relationship; if you default on the loan, your co-borrower’s credit will also be hurt.
Comparing Personal Loan Lenders for Bad Credit
When shopping for a personal loan for bad credit, these are the most important things to consider when comparing lenders:
- APR range: Loans come at a cost, which includes the interest rate and any fees, like origination fees. The yearly cost of each loan is reflected in its APR, or annual percentage rate. This means it’s more important to evaluate the APR versus the interest rate or origination fee when comparing personal loan lenders.
- Loan amounts offered: Make sure the lender you choose offers a loan amount that’s big or small enough for your needs. Some lenders only offer loans of $5,000 or more, which could be a problem if you only need $500. In contrast, if you have a lot of debt to consolidate, you may need a lender that offers bigger loans.
- Repayment terms: In addition to the APR, the next biggest factor affecting the size of your loan payment is the repayment term. You’ll have the lowest overall borrowing costs if you choose the shortest possible repayment term since you’ll pay less interest over the life of the loan. However, this results in a larger monthly payment. Make sure you select a lender offering a repayment term that works with your budget and needs.
- Ease of application and funding speed: If you want to get funded fast, look for a lender that can not only get you funded within a matter of days (some can even offer same-day funding) but that also offers a simple application process. Many lenders offer online applications that take mere minutes to complete and let you know if you qualify without hurting your credit.
- Lender’s reputation: Make sure the lender you choose has a good reputation. Check consumer review sites for customer feedback and look at government sources like the Consumer Financial Protection Bureau’s Consumer Complaint Database. Doing your due diligence will help you choose a reputable lender.
How to Apply for a Personal Loan if You Have Bad Credit
Applying for a personal loan if you have bad credit is similar to what’s required for any other type of loan, including:
- Filling out an application: The first step you’ll need to complete is to submit a loan application that includes personally identifiable information. This includes such things as your name, Social Security Number, and birthdate, items needed by the lender to verify your identity. Plus, you’ll share why you need the loan, how much you want to borrow, and any other information that’s required (e.g., your annual or monthly income).
- Review loan offers: Once you’ve submitted some basic information, many lenders will pull a soft credit check that doesn’t hurt your credit score to see if you qualify for a loan. (However, some don’t offer the option to pre-qualify with a soft credit check.) They’ll also provide you with information about the rates and terms you might receive if you decide to proceed. Carefully review the offer to ensure it fits your needs.
- Accept the terms and provide required documentation: If the offer is acceptable, then the next step is to accept the terms and formally apply for the loan. During this stage, the lender will pull a hard credit inquiry that will affect your credit score. Plus, it will evaluate your income and other items to make sure you qualify for the loan. You may be required to submit additional documentation, like bank statements and pay stubs during this phase of the application process.
- Receive funding and set up an online account: If your loan is formally approved, the lender will disburse the funds to you in the manner you specified in your application. This could be sending them electronically to your bank account, writing you a check, or distributing the funds directly to your creditors to pay off existing debt. You’ll also need to set up an online account with the lender so you can manage your loan.
Frequently Asked Questions
What Are Bad Credit Loans?
Bad credit loans are financing options offered to individuals with low credit scores of 669 or less. Although there are many types of bad credit loans, the most common is an unsecured personal loan. Unsecured personal loans for bad credit often carry monthly repayment terms of no more than two to seven years with a fixed interest rate. Plus, this type of bad credit loan is quick to get, as many lenders offer next-day funding.
Is It Easy to Get a Personal Loan with Bad Credit?
It could be relatively easy to get a personal loan if you have bad credit, so long as you can afford the payment and you’re not currently delinquent on your existing debt. However, if you have active credit issues, like delinquent loans or unpaid tax bills, then you’ll need to work on getting these problems fixed before you apply for a personal loan. There are many places you can go to get help resolving credit issues, such as credit counseling.
What Are the Types of Loans for Bad Credit?
Before choosing a loan for bad credit, it’s essential to understand the types of loans you might be able to get, what it takes to qualify, and how much it will cost you. Just because you have bad credit doesn’t mean you can’t get funding. Make sure to look for a lender with transparent pricing and with reasonable repayment terms that allow you to pay off the balance in no more than five to seven years. The types of available loans for bad credit vary based upon why you need the money, just like any other loan. Some of the most common types of loans for bad credit include:
- Secured loans: There are many secured loans for bad credit, including mortgages, auto loans, home equity loans, and home equity lines of credit. A secured loan for bad credit is appropriate if you need to use the money to buy a car or a house, or if you want to use the money to repair or improve your home. Secured loans are usually the least expensive type of bad credit loan since it’s backed by collateral.
- Unsecured loans: Many lenders offer unsecured personal loans for bad credit, including banks, credit unions, alternative online lenders, and peer-to-peer (P2P) lenders. You won’t need to provide any collateral for this type of loan (e.g., your car or home), and these loans are usually repaid in no more than two to seven years. However, since there’s no collateral, an unsecured loan is often more expensive than a secured loan.
- Credit cards: There are many different credit cards for bad credit. Some of these credit cards even come with features to help you rebuild your credit. This type of bad credit loan can be helpful if you need to have a credit card on hand and you’re can pay it in full every month. Keep in mind, the APR on credit cards is usually high, and so you should do your best to repay the balance as quickly as possible to avoid high borrowing costs.
- Cash advances: If you need cash, many credit card issuers offer cash advances so you can access the funds you need quickly. Banks and other alternative online lenders also sometimes offer short-term cash advance loans. Cash advances are more expensive than secured or unsecured personal loans and often carry very high-interest rates.
Keep in mind that payday loans come with extremely high-interest rates, making them risky loans that are extremely difficult to repay. It’s easy to get caught up in a cycle of using payday loans. For these reasons, it’s best to avoid payday loans and seek another funding option.
How Do You Choose a Loan for Bad Credit?
Before picking a loan for bad credit, it’s essential to consider why you need the money, how quickly the debt will be repaid, what you can afford, and how soon the funds are required. Some more details about the things you need to consider when picking a loan for bad credit are:
- Why you need the loan: The first thing you need to consider when looking for a loan is why you need the funds. One of the most important reasons for this is because the type of loan that’s right for you largely depends upon how you’re going to use the money. For example, if you want to buy a car, then a secured loan is suitable. In contrast, if you need to repair your car and don’t want to use it as collateral, an unsecured loan is better.
- How quickly the loan will be repaid: Once you’ve determined why you need the funds, the next step is to figure out how quickly you’ll be able to repay the funds. The quicker you’re able to repay the money you borrow, the less it will cost you in monthly interest charges. For example, if you can pay for car repairs after getting your next paycheck, a credit card might make sense. However, if you think it will take you a year or two to pay for the repairs, then an unsecured personal loan for bad credit would be a better option.
- How much you can afford: Not only is it important to determine how quickly the loan can be repaid, but you also need to consider how much you can afford. This can be done by putting together a monthly budget that includes all the money you earn and spend. If you don’t know how to build a budget, a credit counselor is an excellent place to get help. Credit counseling agencies may be able to offer this type of financial education for free.
- When you need the funds: Lastly, it’s important to consider when you need the funds. While you might be able to get the funds quickly in some cases (e.g., many unsecured personal loans offer next-day funding), this is not always the case. For example, home loans could take 45 to 60 days or more to get funded. To the greatest extent possible, plan ahead to make sure you’re able to get the funding you need when you need it.
How Do You Know What Credit Score Range You Are in?
- Excellent Credit: 800 – 850
- Very Good Credit: 740 – 799
- Good Credit: 670 – 739
- Fair Credit: 580 – 669
- Poor Credit: under 580
What Interest Rate Can I Expect If I Have Bad Credit?
When you have a FICO score under 670, you’re considered a subprime borrower. If your FICO score is less than 580, your credit falls into the “very poor” range.
Every lender sets its own criteria (including credit score thresholds) for loan approval and pricing. That makes it difficult to predict precisely what APR you’ll be offered for a personal loan if you have bad credit. Interest rates on personal loans can range from roughly 4.99% to 36%. If your credit rating is poor, you might be offered rates on the higher end of that scale.
You may also come across lenders who promise “guaranteed approval” or “no credit check” for bad credit personal loans. Promises like these should be a red flag. Legitimate lenders don’t make these guarantees, according to the Federal Trade Commission, or even say you’re likely to qualify for a loan before you apply.
Where Can I Get a Personal Loan with Bad Credit?
Getting a personal loan with bad credit can be a challenge. Still, you may find multiple lenders willing to do business with you (albeit typically at a higher interest rate). If you’re searching for personal loan options with bad credit, there are two primary loan sources you may want to consider.
- Online personal loans for bad credit: Online lending networks take your loan application and connect you with lenders who may be willing to approve you for a personal loan. Often, you can submit one initial form and compare offers from multiple lenders.
- Direct lenders for bad credit personal loans: Direct personal loans come straight from the financial institution where you’re approved. These may include local banks and credit unions, online banks, and online direct lenders. If you have bad credit, it’s generally best to apply only with direct lenders that are willing to do business with credit-challenged borrowers.
You can find a combination of the best personal loans for bad credit from both types of sources in the guide above.
Should I Use a Personal Loan or a Payday Loan?
When you have bad credit, it might be easier to qualify for a small payday loan than a personal loan. However, payday loans come at a very high cost and should be avoided if at all possible. According to the CFPB, the average APR on a typical two-week payday loan of $100 is nearly 400%.
If you qualify for a personal loan with bad credit, you might be able to borrow money much more affordably instead of using a payday loan. Even an interest rate of 36% that’s near the upper end of the range for most personal loans costs far less than the average fees a payday lender may charge.
Additionally, many local credit unions now offer payday alternative loans (PALs). These loans can range from $200 to $1,000 with repayment terms of one to six months. The goal is to help borrowers with bad credit access more affordable short-term financing. The maximum interest rate on a PAL is 28%, including all finance charges. This rate is significantly less than what you’d pay on a traditional payday loan.
What Is the Difference Between a Personal Loan, a P2P Loan, and a Personal Installment Loan?
A personal loan usually refers to a fixed-rate loan that’s issued to consumers to fund a variety of purposes and paid in monthly installments. Because of how these loans are repaid, they may also be referred to as personal installment loans. Personal loans are often unsecured, meaning there’s no collateral (e.g., cash or an automobile), but they can also be collateral-secured.
Personal loans can be offered by traditional banks, credit unions, and online lenders, including peer-to-peer lenders. Personal loans funded by peer-to-peer lenders (a type of lending that allows individual investors to directly fund people) are referred to as P2P loans. Besides how they’re funded, P2P loans work the same as any other type of personal loan.
If you run into unexpected financial difficulties once you get a personal loan, you might also be able to qualify for a financial hardship loan. This just means that the terms of your personal loan are changed to help you work through the financial hardship. For example, one or more of your payments might be deferred to the end of the loan, your interest rate might be reduced, or your repayment terms might be extended.
We gathered more than 25 pieces of data from over 50 lenders before finalizing our list of the best personal loans for bad credit. Some of the most important factors we considered included the interest rates, fees, loan amounts, repayment terms, application process, and funding speed of each lender. Plus, we evaluated the reputations of all of the lenders included on our list by considering many sources.
All of the personal loans for bad credit that we selected are from reputable lenders who offer transparent pricing and terms, as well as a simple online application process.