How to Get a Personal Loan With Bad Credit

What does it mean to have “bad credit”?

Credit scores range from 300 to 850, with 850 considered a perfect score. There are two main credit scoring models, FICO and VantageScore, and each uses its own methodology for calculating a score and its own benchmarks for what’s considered a bad credit score.

For FICO, anything under 580 falls under the “poor” classification, while VantageScore considers anything 600 or under to be “poor” (with 300 to 499 being “very poor”).

“For those that have a bad credit score, they are likely going to have a few challenges when looking to get a personal loan,” said Sebastian Jania, owner and founder of Ontario Property Buyers, a real estate solutions and investment company.

“When someone has a bad credit score the lender is taking on much more risk, so the lender is typically going to be demanding higher interest rates and potentially fees to get out of or get into any kind of personal loan.”

Personal loan options for borrowers with bad credit

A personal loan is money borrowed and paid back in monthly installments. You can use the funds for almost anything, and this flexibility is one reason why these loans are so popular. For someone with bad credit, there are a few suitable options.

“I recommend if someone is having trouble getting a personal loan that they explore the option of having a co-signer or see if there is a way where they can put up some kind of collateral, such as by getting a home equity line of credit,” said Jania, noting that rates are significantly lower on secured versus unsecured loans.

Below, we break down the best personal loan options for those with poor credit.

Secured personal loans

A secured personal loan is a personal loan requiring collateral, or an asset the lender can repossess, if the borrower defaults on the loan. While mortgages and auto loans are well-known examples of this, you can also find secured personal loans.

Since the collateral offers the lender an extra layer of protection, it typically means a higher chance of approval. It may also mean lower interest rates and greater borrowing limits compared to an unsecured loan.

In addition to the collateral, the lender also uses the borrower’s creditworthiness as a factor in approval and for setting interest rates and borrowing limits.

» COMPARE: Best secured personal loans

Alternative credit scoring loans

There are some lenders that consider other factors besides credit scores; these alternative credit scoring loans may offer another option for someone with bad credit.

Lenders like Upstart consider additional applicant information like education and employment, in addition to your credit score.

Co-signer or co-borrower loans

Another option for getting a personal loan with bad credit is by adding a co-signer or co-borrower to the loan:

• A co-signer doesn’t have access to the funds, but they share in the repayment responsibility.
• A co-borrower shares in the funds and is also responsible for repayment.

In either circumstance, it can boost your chances of approval and a better interest rate if the co-signer/co-borrower has excellent credit. But keep in mind that if you default, the other person’s credit is on the line, too.

Payday alternative loans

If you’re a member of a credit union, or open to becoming one, you may have access to a payday alternative loan (PAL).

A PAL is a short-term personal loan, and the National Credit Union Administration (NCUA) caps both the borrowing amount and the interest rate. There are two PAL options available, which include:

• PAL I: This short-term, small-dollar loan offers loans from $200 to $1,000 and repayment options range from one to six months. You must have a credit union membership for at least a month before borrowing.
• PAL II: This option offers loans up to $2,000 and repayment terms up to 12 months. You’re eligible for these loans as soon as you join a credit union.

Credit-builder loans

While you don’t actually borrow money with a credit-builder loan, it is a valuable option for someone looking to build or repair their credit.

Instead of a lender extending credit to a borrower like a traditional loan, with a credit-builder loan, you make payments to a savings account or certificate of deposit (CD) during a specified loan term. When the loan term ends, you get back the money you paid minus interest charges and fees.

The result: you build a payment history, which is essential for establishing credit. On-time payments can significantly improve your credit score and establish positive money habits.

No credit-check loans

There are lenders offering no credit-check loans, and as the name implies, your credit score isn’t factored into approval. However, they typically require a guarantee of repayment by your next paycheck (or within 30 days), which is why they’re commonly known as payday loans.

Payday loans are extremely risky because the interest rates are typically substantially higher than other personal loans. Plus, if you default on the loan, you face debt collections and even possible wage garnishment. If you do choose a no credit-check loan, find a reputable lender that doesn’t charge astronomical fees.

Compare personal loans for bad-credit borrowers

Different loan types work for different situations. Here’s how your options stack up:

Step-by-step guide to applying for a personal loan with bad credit

Getting approved for a personal loan with bad credit takes more preparation than applying with good credit. Expect the entire process to take one to two weeks from application to funding. By following the steps below, you can improve your chances and secure the best terms possible.

If you have time to work on improving your credit score before applying for a personal loan, it’s usually worth it to get better loan terms.

Step 1: Check your credit score and report

Find out your credit score prior to filling out any applications. You can pull your free credit report from AnnualCreditReport.com and check your score through your bank or a free service like Credit Karma. Look for errors that could be dragging down your score and dispute any mistakes with the credit bureaus before applying.

Step 2: Calculate how much you can afford

Figure out your monthly payment budget before applying. Use online loan calculators to see what different loan amounts and terms cost per month. Don't borrow more than you can comfortably repay, as missed payments will damage your credit further.

Step 3: Research lenders that accept bad credit

Once you know your credit score, you can shop for lenders that work with borrowers in your score range. Focus on online lenders, credit unions and lenders specializing in bad credit loans. Avoid traditional banks, since they rarely approve borrowers with scores below 640. Make a list of three to five lenders with minimum credit score requirements you meet.

Step 4: Get pre-qualified

You can also go through the pre-qualification process, which is a basic review of your creditworthiness. Most lenders offer pre-qualification with a soft credit check that won't hurt your score. Submit basic information (income, debt, loan amount) to see estimated rates and terms. Pre-qualification takes five to 10 minutes per lender and lets you compare offers without commitment.

Step 5: Compare offers carefully

Look beyond just the interest rate. Compare APRs (which include fees), origination fees (0% to 8% of the loan), repayment terms and monthly payments. Calculate the total cost of each loan, keeping in mind that a slightly higher rate with no origination fee may cost less overall.

Step 6: Gather required documents

You’ll need proof of identity (driver’s license or passport), proof of income (recent pay stubs or tax returns), proof of address (utility bill or lease), bank statements (last two to three months) and your Social Security number. Bad credit borrowers may need additional documentation like employment verification or explanations for past credit issues.

Step 7: Submit your full application

Choose your best offer and complete the full application. The lender will run a hard credit check, which temporarily drops your score five to 10 points. Be honest about your income and debts, since lying on a loan application is fraud.

Step 8: Review and sign loan documents

If approved, carefully read the loan agreement before signing. Check the APR, origination fee, monthly payment, repayment term and prepayment penalties. Make sure everything matches what you were quoted.

Step 9: Receive your funds

Most lenders deposit funds within one to seven business days after approval. Some offer same-day or next-day funding for an extra fee. If you’re using the loan for debt consolidation, ask if the lender pays creditors directly, which ensures old debts get closed.

Tips for applying for a personal loan with bad credit

Here are some strategies to improve your personal loan approval odds:

• Pay down your existing debt as much as you can. Reducing your credit usage will have a positive effect on your score and improve your chances of approval and your likelihood of qualifying for a lower rate.
• Don’t make late payments. Late payments on bills, credit cards and other financial obligations can significantly hurt your credit score.
• Look for credit cards for first-time borrowers. Secured credit cards are a great option for those with bad credit who want to build it back up.
• Don’t apply for other types of loans after applying for a personal loan. Avoid any new hard credit inquiries on your report while waiting for an approval decision.

What to look for in a bad-credit personal loan

Shopping around and comparing personal loan options is one of the most effective ways to ensure you’re getting the best loan for your finances, no matter what type of credit score you have.

As you compare, consider the following information for each loan.

• Collateral: If you’re applying for a secured personal loan, confirm what type of collateral you need to secure it. Ask yourself if the required collateral is worth risking if you default on the loan for any reason.
• Loan amount: This is the total amount you’re approved for borrowing. Not only does each provider have its own range, but your credit score also influences the amount approved.
• Interest rate: The interest rate is the cost of borrowing money. Someone with a bad credit rating will likely receive a higher interest rate. The Federal Reserve reported an average of 11.14% for 24-month personal loans as of August 2025, and most personal loan interest rates range between 6% to 36%. If you see interest rates much higher than this, it could be a sign of predatory lending.
• Repayment term: The term length greatly impacts your monthly payments. Shorter terms mean higher monthly payments; however, even though a longer term length may give you a lower payment, you’ll end up paying more in interest over time.
• Lender’s fees: Lenders often include multiple types of fees in a loan, such as origination fees, administrative fees, prepayment penalties and potential late fee charges.
• Credit score and other requirements: Ensure you’ll qualify for the minimum credit score the lender will consider for a loan, plus any other income or credit requirements.

How to avoid predatory loans and scams

Bad credit makes you a target for predatory lenders and scammers. These companies prey on desperate borrowers with deceptive terms that trap you in debt. Here’s how to protect yourself.

Red flags of predatory lenders

The following are signs that you should avoid borrowing money from the lender at all costs.

• Guaranteed approval with no credit check: Legitimate lenders always verify your ability to repay. If a lender promises approval without checking income or credit, they're either charging astronomical rates or running a scam.
• Pressure to act immediately: Lines like “This offer expires today” or “Apply now before rates go up” are manipulation tactics. Legitimate lenders give you time to review terms and compare options.
• Requests for upfront fees: Never pay application fees, processing fees or “insurance” before receiving your loan. Real lenders deduct fees from your loan amount or add them to your balance. Upfront fee requests are usually scams; you’ll pay and never see the loan.
• Unclear or missing terms: If the lender won’t provide a written agreement showing the APR, fees, payment schedule and total loan cost, walk away. Federal law requires lenders to disclose these details clearly.
• Unsolicited offers: Legitimate lenders don’t cold-call or email offering loans. If you didn't apply and someone contacts you promising easy money, it's a scam.
• No physical address or license: Check that the lender has a legitimate business address (not just a P.O. box) and is licensed in your state. Search “[lender name] + complaints” and check the Better Business Bureau.

How to vet lenders safely

Here’s how to ensure the lender you’re borrowing from is legit.

• Verify licensing: Use your state’s financial regulator website to confirm the lender is registered to operate in your state.
• Read reviews: Check ConsumerAffairs, Trustpilot and the BBB for patterns of complaints about hidden fees, aggressive collections or loan terms that don’t match what was advertised.
• Get everything in writing: Before signing, request a complete loan agreement showing APR, origination fees, payment amount, term length and prepayment penalties.
• Compare multiple offers: Never accept the first offer. Getting three to five quotes helps you spot unreasonable rates and terms.
• Trust your gut: If something feels off or too good to be true, it probably is. Don’t let desperation override common sense.

» BORROW BETTER: 11 payday loan alternatives

What to do if you’re denied a personal loan

If you’re denied a personal loan, you still have alternative options available. By law, a lender must tell you why your application was rejected within 60 days of the decision, which can help you understand what areas in your financial situation need improving.

In the meantime, you can also explore alternative funding. If you have time, you can look into hardship programs (such as rent or food assistance) through your local community or government for temporary assistance.

If you need money more urgently, you can also try cash advance apps, such as Dave or Chime, that let you borrow money against your paycheck without a credit inquiry or interest. Note that these apps typically only lend small amounts and do charge additional fees, which is an important consideration before committing.

Borrowing from friends and family is another alternative and can help avoid high interest on charges and fees. Before going down this path, though, put the details of your agreement, including the loan amount, interest charges and repayment plans, in writing so there is clear understanding from both parties to avoid potential conflict.

FAQ

Bottom line

Typically, personal loans with bad credit are more costly — and they should always be carefully considered. However, if you use the funds to help pay down other debt or consolidate, this could help you get caught up on your finances.

Before applying for a personal loan, consider how much you can comfortably afford to pay back each month. If there’s a chance you could default on the loan, it’s probably better to consider an alternative or take steps to build your credit first.