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How to get a personal loan with bad credit

Follow these 4 steps to access funds and build credit

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Written by Sandy Baker
Edited by Cassidy McCants
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A personal loan typically doesn’t require collateral, or an asset, to back up the loan's value. These unsecured loans can be more difficult to obtain for those with low credit scores, but there are bad-credit options available, especially if you have a solid income and a good debt-to-income (DTI) ratio.

Minimum credit score for a personal loan

Most lenders put quite a bit of weight on credit scores — they provide insight into a potential borrower’s repayment history, which can help determine their future actions. Each lender sets its own credit score minimums.

These minimums range widely. Though it can be harder to find a good loan with a score below 640 or so, many lenders are willing to work with those with bad credit, especially if the rest of their financial profile looks good (this often means higher APRs, however).

Beyond your credit score, lenders also examine your income and debt-to-income ratio. If your debt-to-income ratio is too high (above 35% to 40% or so), you may not qualify with many lenders — or your offers may include a high APR, which can be very costly in the long run.

Getting a personal loan with bad credit

If you have bad credit, use the following steps to help you get a personal loan with the best possible terms.

1. Check your credit

There are several ways to check your credit reports and score. It's a good idea to check your TransUnion, Experian and Equifax reports for free annually. Look for any mistakes on your report, such as missing payments, accounts that aren’t yours and inaccurate information about your credit usage. It's sometimes possible to get your credit score from your credit card company, bank or a credit scoring site for free.

2. Compare lenders (including bad-credit lenders)

You’re likely to find a range of options out there, from specialized bad-credit lenders to local credit unions, banks and online lenders. Take the time to check out their credit score requirements, then compare your options: What’s the loan maximum? What APR do you qualify for? What are the repayment terms?

3. Pre-qualify

Some lenders may pre-qualify you for a loan. You’ll supply the lender with some basic information about your borrowing needs, and then it’ll likely do a soft credit pull, which won’t impact your credit score.

This helps you determine if you’re likely to qualify for the loan you want, how much you can borrow and the annual percentage rate (APR) you're likely to pay. You can use this information to compare offers from different lenders.

4. Get a co-signer to apply with you if you can

If you’re struggling to qualify, consider adding a co-signer to your account. Applying with another person may help to improve your odds of obtaining a loan, especially if your co-signer has a higher credit score. There are downsides to bringing on a co-signer — they'll be responsible for making payments on the loan if you default — but, for many, this is the only way to get approved for a loan with a bad credit score.

Where to get a personal loan with bad credit

There are many lenders that work with borrowers with less-than-ideal credit. Carefully consider your options before agreeing to any loan.

  • Online lenders: Online loans are often a good choice for borrowers with bad credit. They’re widely available and typically have simple applications. Many online lenders are flexible with credit scores if you have a high income and good DTI ratio.
  • Credit unions: If you belong to a credit union, you may be able to request a personal loan. Credit unions tend to be more lenient in terms of credit score requirements, especially if you have been a member for a long time.
  • Traditional banks: Some banks have lower credit score requirements. It’s worth checking with your bank first to see if it is willing to extend a personal loan based on your history as a customer.

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    How to boost your credit score

    If you have time to work onimproving your credit score before applying for a personal loan, it’s usually worth it. Whether or not you qualify now, taking a few extra steps to improve your score may help you get better loan terms in the long run. Here are some tips:

    • 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 if you haven’t yet built up any credit. 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. You’ll want to avoid any new hard credit inquiries and accounts on your report while you wait for an approval decision.

    Personal loan alternatives

    Even if you’re qualified for a personal loan with bad credit, you may want to avoid the high rates and the risk of being unable to afford repayment. Fortunately, there are other options for getting the funds you need.

    For example, if you have a 401(k), you might be able to access those funds at a lower interest rate. You could also borrow money from family or loved ones to help you meet your existing needs while you work on rebuilding your credit.

    Also, consider a secured loan that uses a valuable asset as collateral. A secured loan is generally easier to qualify for and has a lower rate. Just make sure you understand your lender’s terms regarding collateral. Some of our reviewers, including a consumer from California, have reported attempted bait-and-switches where they’re approved for an unsecured loan and then asked to provide an asset as collateral.

    Bottom line

    In some cases, taking out a bad-credit loan could be a good decision. Typically, these loans 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 to take steps to build your credit first.

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