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Bad Credit Loans: What You Need to Know
Updated: Dec 7, 2021
Summary of best bad credit loan companies
Bad credit lenders each have something different to offer borrowers. These lenders report loan payments to the credit bureaus, so your on-time loan payments can help you build credit.
Upgrade: Best for bad credit debt consolidation loans.
Upstart: Best for borrowers with limited credit history.
LendingClub: Best for credit card consolidation loans for bad credit.
OneMain: Best for bad credit secured and co-signed loans.
Universal Credit: Best for bad credit loans with credit-building tools.
SeedFi: Best for bad credit loans that help you build savings.
Oportun: Best for small bad credit loans.
Bad credit loan rates
Personal loans can have high rates for borrowers with low credit scores. Borrowers with bad credit can expect an annual percentage rate between 20% and 30%. Some lenders may consider what you’re using the funds for and the amount you request when calculating your rate.
Personal loan interest rates by credit score
How's your credit? | Score range | Estimated APR |
Excellent. | 720-850. | 11.2%. |
Good. | 690-719. | 15.5%. |
Fair. | 630-689. | 20.5%. |
Bad. | 300-629. | 25.3% (Lowest scores unlikely to qualify). |
Source: Average rates are based on aggregate, anonymized offer data from users who pre-qualified in NerdWallet’s lender marketplace from July 1, 2020, to July 31, 2021. Rates are estimates only and not specific to any lender.
What is a bad credit personal loan?
A bad credit loan is a personal loan for borrowers with low credit scores. These loans have fixed rates and are repaid in fixed monthly installments. They are typically not backed by collateral — they're unsecured. Lenders consider your credit score, credit report and debt-to-income ratio when deciding whether to lend you the money.
How a bad credit score affects your ability to get a loan
Having a bad credit score (300-629 on the FICO scale) doesn’t automatically disqualify you from getting a personal loan, but it lowers your chances of approval. If you do qualify, you may get an interest rate at the high end of a lender’s range.
Bad credit loans are often repaid in monthly installments, usually over one to five years. You can use the funds to pay for almost anything, including a home improvement project, medical bills or credit card consolidation.
How to compare bad credit loans
Qualifications
Many bad credit lenders consider your credit score on a personal loan application, but they also weigh other factors. Here are a few things lenders look for when qualifying you for a loan.
Credit score. If a lender has a minimum credit score requirement you’ll need at least that score, ideally a higher one, to qualify.
Debt-to-income ratio. This is the percentage of your monthly income that goes to debt repayment. Lenders typically like to see this below 40%.
Cash flow. Many lenders want to see that you have at least enough money to afford the new loan payments after you pay all your other bills.
Co-applicant and collateral. If you get a co-signed or secured loan, the person or time you add to your application becomes a factor in whether you qualify.
Rates and monthly payments
Bad credit loans typically have higher interest rates than good credit loans, but you should still compare offers to find the most affordable loan.
There are two ways to measure the cost of a loan:
Annual percentage rate: A loan’s annual percentage rate is similar to its interest rate, but it also includes any fees a lender may charge, like an origination or prepayment fee. Most financial experts agree that affordable loans should have an APR below 36%.
Monthly payments: Measure a loan’s monthly payment against your budget to see if you can afford it. You can use a personal loan calculator to see your monthly payments on a personal loan with any rate and term.
Repayment terms
Bad credit loan repayment terms tend to fall between one and five years. A longer repayment term will get you lower monthly payments, but you’ll pay more in total interest. Aim for a repayment term that keeps your monthly payments affordable, but helps you pay off the loan quickly.
Speed
A bad credit loan can be funded the day you’re approved or it could take up to a week. During the approval process, a lender may ask you for more documentation, like W-2s and pay stubs.
Credit-building features
Consider a bad credit lender that will help you understand and build your credit. Some lenders will share your FICO score with you for free and offer financial education to help you learn about ways to build credit.
Steps to get a personal loan with bad credit
Here are the steps to applying for a bad credit loan:
Check your credit report: Before you apply for a personal loan, check your credit report and address any errors that could impact your score and hurt your chances of qualifying. NerdWallet offers free access to your TransUnion credit report. You can also get a free report from each of the three big credit bureaus (the other two are Experian and Equifax) from AnnualCreditReport.com.
Review your budget: It helps to know your monthly budget when you’re about to apply for a personal loan — that way you’ll know how much you can afford to pay toward it each month.
Pre-qualify online: Pre-qualifying lets you see potential loan rate, amount and repayment term offers from multiple online lenders. The process involves a soft credit check, which does not impact your score.
Consider a co-signed or secured loan: Adding a co-signer or collateral, like a vehicle, to the loan application can improve your chances of qualifying or get you a lower rate.
Gather your documents: A lender may ask for information such as your Social Security number, proof of employment and proof of income. Gather things like tax documents, pay stubs and W-2s before you apply to speed up the process.
Submit an application: It can take anywhere from one business day to a week for a lender to review an application and fund a loan. The process triggers a hard credit inquiry, which can cause your score to dip, but it should rebound over time.
Types of bad credit loans
Unsecured bad credit personal loans
An unsecured loan doesn’t require collateral. Instead, a lender determines whether you qualify based on things like your credit score, income and cash flow.
It may be difficult for bad credit borrowers to qualify for an unsecured loan because many banks, credit unions and online lenders weigh your credit score heavily on a loan application.
Some online lenders, like those listed above, design their unsecured loans for consumers with low credit scores.
Secured bad credit loans
Credit standards are typically lower for secured loans, which require collateral, so it may be easier to qualify if you have bad credit.
When you add collateral to an application, the risk to the lender tends to be lower — it has something of value to take if you don't make the loan payments.
Banks and credit unions may let you use an account, like a savings or investment account, to secure the loan. Online lenders more often let you secure the loan with a vehicle.
Though adding collateral to the loan can help you qualify or get you a better rate, weigh the importance of getting the loan against the risk of losing your collateral.
Co-signed bad credit loans
A co-signer with better credit and a higher income may improve your chances of qualifying for a loan or get you a lower rate. It tells the lender that if you don’t make the loan payments, someone else likely will.
Co-signed loans aren’t as common as joint loans, where you have a co-borrower. Adding a co-borrower has a similar effect on your ability to qualify, but both borrowers have access to the funds on a joint loan. That isn’t the case with a co-signed loan.
With either option, if you fail to make payments on the loan, your co-applicant will be required to pay and both of your credit scores could take a hit.
Cash advance apps
A cash advance app lets you borrow from your next paycheck before you receive it. These apps typically don’t consider your credit score at all when you request an advance. Instead, they review your bank account to see when you get paid, how much and how you spend to determine whether you qualify for an advance.
They usually withdraw your funds on your following payday. Advance amounts are typically capped around $250.
These apps may charge fees for things like subscriptions or fast funding, and some ask you to tip them for the service. By using an app you may be paying to access money you’ve earned, so this should be one of the last financing options you consider.
If you use a cash advance app, check your budget and make a plan to cover your necessary expenses, like bill payments, with a smaller paycheck.
Spotting bad credit loan scams
The lenders on this page offer legitimate personal loans. Here are a few red flags to look out for when you're loan shopping.
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.
How to repay a bad credit personal loan
As with any debt you take on, have a plan to pay off your personal loan.
Update your budget: Follow a budget that divides your income into needs, wants, savings and debt to ensure timely monthly payments toward your personal loan.
Set up autopay: Setting up automatic payments ensures you’ll make them on time. Over time, this will help improve your credit score. Some lenders offer rate discounts to customers who use autopay.
Keep in touch with the lender: If you lose your job or encounter a surprise expense and think you may fall behind on payments, contact the lender right away to work toward a solution. Some lenders offer hardship programs or will temporarily defer your payments and waive late fees until you get back on your feet.
NerdWallet’s Personal Loan Rating Methodology
NerdWallet’s review process evaluates and rates personal loan products from more than 30 lenders. We collect over 45 data points from each lender, interview company representatives and compare the lender with others that seek the same customer or offer a similar personal loan product.
Our star ratings award points to lenders that offer consumer-friendly features. Here are some of the things that we look for:
Soft credit checks to pre-qualify.
Competitive interest rates and no fees.
Transparency of rates and terms.
Flexible payment options
Fast funding times.
Accessible customer service.
Reporting of payments to credit bureaus.
Financial education.
We also consider regulatory actions filed by agencies like the Consumer Financial Protection Bureau.
We weigh these factors based on our assessment of which are the most important to consumers and how meaningfully they impact consumers’ experiences. This methodology applies only to lenders that cap interest rates at 36%, the maximum rate most financial experts and consumer advocates agree is the acceptable limit for a loan to be affordable. NerdWallet does not receive compensation for our star ratings. Read our editorial guidelines.
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Disclaimers
Annual Percentage Rates (APR), loan term and monthly payments are estimated based on analysis of information provided by you, data provided by lenders, and publicly available information. All loan information is presented without warranty, and the estimated APR and other terms are not binding in any way. Lenders provide loans with a range of APRs depending on borrowers' credit and other factors. Keep in mind that only borrowers with excellent credit will qualify for the lowest rate available. Your actual APR will depend on factors like credit score, requested loan amount, loan term, and credit history. All loans are subject to credit review and approval.
