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Just the term “bad credit loans” can cause you to hesitate – as it should. Bad credit loans are really more of a necessary evil than a desirable choice. That’s because they come with high-interest rates and fees, which may not necessarily improve your financial situation. But you can avoid at least some of that negative impact by choosing the best loans for bad credit.
In this guide, we’re providing what we believe to be five of the best loans for bad credit. The table below summarizes the highlights of those lenders. A more detailed description of each will follow.
| Lender | APR* | Minimum Credit Score | Loan Amount | Best for |
|---|---|---|---|---|
7.8% - 35.99% | 300 | $1,000 - $50,000 | Very low credit scores | |
5.99% - 35.99% | Any | $500 - $10,000 | Online resources | |
6.40% - 35.99% | 550 | $600 - $100,000 | One-stop shopping | |
7.99% - 35.99% | 660 | $2,000 - $36,500 | Fast funding | |
8.49% - 35.99% | 580 | $1,000 - $50,000 | Bad credit loan with rewards checking | |
9.57% - 35.99% | 600 | $1,000 - $40,000 | Multiple loan types | |
9.95% - 35.99% | 550 | $2,000 - $35,000 | Low origination fee |
*APR depends on your personal credit information and may vary beyond the ranges given.
Best Loans for Bad Credit
Upstart
Upstart Loan
Upstart Loan
Upstart is an online personal loan marketplace, providing loans since 2012. The company makes widespread use of automated underwriting in loan decisions. In fact, 84% of their loans are fully automated. That means loan decisions are made based on information obtained online, including credit reports and income verification. Using this method, the company claims it approves 43% more loans than competitors using traditional credit-based underwriting alone.
Loans offered include personal loans, credit card consolidation, debt consolidation, home improvement, medical loans, and wedding loans. And since the company accepts credit scores as low as 300, nearly all credit profiles are accepted.
BadCreditLoans.com
BadCreditLoans.com Loan
BadCreditLoans.com Loan
BadCreditLoans.com is like Credible: an online marketplace where you shop for lenders. It also lets you search for the best rate and loan terms given your current credit score, and they don't charge for the service because their partners (who actually loan you the money) pay them a referral fee for your account. That also means your credit score won't get dinged with multiple hard credit inquiries if you are shopping around for a loan.
Another advantage of using BadCreditLoans.com is its rapid approval and funding system. You may not be approved for a loan, but if you are, you can see the funds usually hit your bank account within a day or two. They also have a wide library of educational materials to bring you up to speed on the pros and cons of loans for bad credit.
BadCreditLoans.com only gets a B- score from the Better Business Bureau and 2.7 stars out of five on Trustpilot. The biggest complaint is less-than-stellar customer service.
Credible
Credible Personal Loan
Credible Personal Loan
Credible is an online marketplace that aggregates prequalified rates for consumers to review. When you shop for a loan on Credible, you don't pay fees to Credible because they make their money by referring you to a lender.
The upside of Credible is they do the shopping for you. You enter your information in to their platform, and they surface the lenders who are most likely to offer you a loan. You also don't get further dings on your credit report from multiple hard credit inquiries. What's more, their pre-approvel process means you can get your money deposited to your bank account within days or even hours.
LendingPoint
LendingPoint Loan
LendingPoint Loan
LendingPoint provides personal loans using proprietary technology and algorithms to speed the application process. Loans are available for debt consolidation, medical expenses, emergency funds, home improvement, travel, tax payments, an upcoming wedding, or just about any purpose. LendingPoint will make funds available on the next business day after loan approval.
In addition to meeting credit standards, you must also have a minimum annual income of $35,000 as well as a personal bank account in your name. You should also be aware that you cannot use a cosigner to qualify for a LendingPoint loan.
Upgrade
Upgrade Loans
Upgrade Loans
Not only does Upgrade offer loans for consumers with bad credit, but also rewards checking. Their Rewards Checking Plus account comes with no monthly fee and a 2% cash back¹ on purchases. As an added bonus, you can get $200 when you open a Rewards Checking account and make three debit card transactions. And if you have the funds to invest, you can also add a Premier Savings account, currently paying up to Up to 5.21% APY.
Upgrade has provided $21 billion in loans to 2 million customers. Upgrade offers personal loans, which can be used for debt consolidation, home improvement, major purchases, or to refinance credit cards. You can complete your application online in minutes, then review and choose the loan option that will work best for you. Funding typically occurs within one day of approval.
LendingClub
LendingClub Loan
LendingClub Loan
LendingClub is one of the leaders in online personal loans, enabling more than 4 million customers to obtain nearly $80 billion in personal loans. It differs from the other lenders on this list in that it acts as an online personal loan crowdfunding platform. You’ll obtain a loan that will be funded by individuals and companies who invest directly on the platform. That arrangement effectively eliminates the “middleman” – usually the bank – by bringing borrowers and investors together.
Over the years, LendingClub has grown, expanding its product menu as they have. They now provide business loans, auto refinancing, and patient loans. They even offer personal and business banking, including a high-yield savings account with a current yield of 4.25% APY, and Rewards Checking where you can earn 1% cash back as well as interest, with no monthly maintenance, overdraft, or non-sufficient funds fees.
Avant
Avant Loan
Avant Loan
Avant provides personal loans that can be used for debt consolidation, home improvement, emergencies, and other purposes. The lender stands out because they have one of the lowest origination fee schedules among bad credit lenders in the personal loan space (which they refer to as an “administration fee”). While they do accept lower credit scores in some cases, they report most customers fall between the 550 to 700 range.
In addition to personal loans, Avant also offers credit cards. The Avant Credit Card can help you boost your credit score and does not require a security deposit. The card also comes with no over-limit fees.
Types of loans for bad credit
We’ve been talking primarily about unsecured personal loans for bad credit. But there are other types of loans for which you may be eligible with less-than-perfect credit.
Secured loans
These are similar to personal loans except you’ll need to put up an asset as collateral. The most common sources of collateral are your home or vehicle. How much you can borrow will depend on how much equity you have in either asset.
These are commonly offered by credit unions and banks. You’ll take a loan from the institution, and the funds will be deposited into a savings account. You’ll make monthly payments – which will help improve your credit score – and the funds in the savings account will be released to you when the loan is paid.
Cash advances
This is an amount of cash you can draw against a credit card line. For example, a credit card with a $5,000 limit may allow you to take a cash advance of up to $2,500. But be aware that these advances come with high-interest rates (usually well above 20%), and charge fees of either 3% or 5% of the funds advanced.
A cosigned loan
This is where you take a loan from a bank or credit union, qualifying by having it cosigned by another borrower who has good or excellent credit. This is generally the most cost-effective way to both obtain funds and improve your credit since it will carry a lower interest rate and more favorable terms than other funding sources that may be available.
How to get a loan with bad credit
Getting a loan with bad credit is a multistep process likely to involve several of the following steps:
Check your credit in advance
This will give you an opportunity to know what your score is before you apply, but more importantly, to make any corrections that might improve the score. That can include paying off past-due balances or disputing late payments.
Assemble required documentation
This will include copies of recent pay stubs and W-2s to verify your income and recent statements from any loans or credit cards you want to pay off with the new loan. Also be ready to provide ID information, like your driver’s license and Social Security number.
Be sure to enter accurate information when shopping for rates
Your most current credit score and precise income information can have an impact on both your loan approval and the rate you’ll pay, so be sure to have the right numbers available and provide them carefully to your potential lender.
Add a cosigner, if permitted
Some lenders will permit adding a better-qualified borrower. If so, you may get a better rate and more generous terms. However, defaulting on a loan that was cosigned by a friend or family member can cause a rift in your relationship, so choose wisely before making this decision.
Shop between lenders
You should get rate quotes from at least three or four lenders before making your choice. That will ensure the best rate and terms.
If you don’t like the final approval terms, be prepared to walk!
If the rate is higher than you were told, or the loan amount is lower – or the lender has slipped in an unexpected prepayment penalty – don’t take the loan! Once you accept the loan proceeds, it will be too late to turn back.
Should you get a loan with bad credit?
Because of the high fees and interest rates that typically come with bad credit loans, this type of financing arrangement is best avoided entirely.
But if you’re debating whether to get a bad credit loan, consider the decision in light of the following pros and cons:
Pros:
- There may be no alternative to taking a bad credit loan.
- Interest rates on a bad credit loan may be lower than those on credit cards.
- If you’re using the loan for debt consolidation, it might lower your overall monthly payment and give you a better chance of getting out of debt completely.
- If you have bad credit, taking a new loan – and making the payments on time – is one of the very best ways to improve your credit score.
Cons:
- Bad credit loans come with high-interest rates and high fees (which must be paid upfront).
- If you fail to make your payments on time or default on the loan, your credit will be worse than it was before taking the loan.
- The bad credit loan space has a large number of unscrupulous lenders. You can find yourself in a worse situation after taking one you really can’t afford.
How to spot bad credit loan scams
Unfortunately, there are plenty of unscrupulous businesses looking to prey on consumers with bad credit. You’ll be able to spot one of their bad credit loan scams if they include one or more of the following characteristics:
- Some form of payment is demanded upfront – this will be something like “send us $395 and you’ll have your funds by the end of the week”.
- The lender seems too anxious for your business, contacting you repeatedly.
- The lender is difficult to contact, whether by phone or email and may not even have a clear physical address.
- There’s no evidence the lender is licensed to do business in your state.
Warning lights should be flashing if a lender approaches you using any of the above tactics.
Alternatives to loans for bad credit
Just because loans for bad credit are available, doesn’t mean you should jump at the chance. There may be other options that will ultimately be less costly.
Improve your credit score
The difference of just a few points in your score can have a material impact on the type of loans you can apply for. For example, if you can increase your credit score from 620 to 650 you may qualify for a standard bank loan. Once again, get a copy of your credit report and see where you can make improvements.
Credit cards
Making a purchase or accessing cash from one or more existing credit lines is sometimes more cost-effective than a new bad credit loan.
Loans from family and friends
If you have people in your life who are willing to extend you a loan, this can be a much less expensive option. But be sure to formalize the agreement as a matter of trust. Execute a written loan agreement, complete with an interest rate and a schedule of repayments. Then be sure to repay the loan on time to maintain that all-important trust.
Get a loan with a cosigner
It may be possible to get a larger loan with a lower interest rate if you add a cosigner. That person must have a better credit score and higher income to qualify. And if he or she agrees to do so, make all payments on time. Any late payments on the loan will appear on your cosigner’s credit report, as well as yours.
Get a second income
One of the main reasons why bad credit loans are needed is because of a lack of sufficient income. Getting a part-time job or starting a side business may improve your financial situation on a long-term basis. It will enable you to better pay your bills and make purchases without the need to resort to credit.
Methodology
In determining this list of the best loans for bad credit, we’ve used the following criteria:
- Interest rate range charged (APR).
- Fees charged.
- Minimum credit score requirements.
- Loan amount range.
- Lender reputation, as indicated by the Better Business Bureau rating.
- What each lender is best for.
Frequently asked questions (FAQs)
What is a bad credit loan?
A bad credit loan is one that is designed for consumers with credit scores that prevent them from obtaining traditional financing. This is often determined by your credit score. Each lender establishes its own minimum credit score requirement. A bank may set a minimum credit score of 670, while a credit union will accept as low as 650. Anything below may force you to obtain a bad credit loan.
What is the easiest type of loan to get with bad credit?
Generally, any loan that is secured will be the easiest. The most common example is a car loan. Because the car acts as security for the loan, you’re more likely to be approved, since the lender can repossess the vehicle if you fail to pay.
Can I get a loan with bad credit?
Yes, but probably not from the usual sources, like banks and credit unions. You’ll need to apply with lenders who specialize in loans for bad credit. The lenders included in our list above meet those criteria.
Can you get a personal loan with a credit score of 550?
As you can see in our analysis of the best loans for bad credit, there are lenders that will go well below 550. The most obvious example is Upstart, which will consider a credit score as low as 300.
Can you get a loan with no credit check?
It may be possible, but you’ll need to use extreme care in proceeding. Lenders that require no credit check charge very high interest rates and fees and may even be scam artists.
Is there risk in bad credit loans?
There’s always a risk in taking any type of loan. However, the risks are greater with bad credit loans since the high interest rates and fees could make them more difficult to manage. And if you fail to make your payments on time or default on the loan, your credit will be even worse than it was before taking the loan.
¹ Rewards Checking Plus customers who set up monthly direct deposits of $1,000 or more earn 2% cash back on common everyday expenses at convenience stores, drugstores, restaurants and bars - including deliveries - and gas stations, as well as recurring payments on utilities and monthly subscriptions including phone, cable, TV and other streaming services, and 1% cash back on all other debit card purchases. 2% cash back is limited to $500 in rewards per calendar year; after $500, customers earn 1% cash back on all eligible debit card purchases for the remainder of the year. Rewards Checking Plus accounts with less than $1,000 in monthly direct deposits 60 days after account opening will earn 1% cash back on common everyday expenses and 0.50% cash back on all other eligible debit card purchases. Some limitations apply. Please refer to the applicable Upgrade VISA® Debit Card Agreement and Disclosures for more information.
This story was written by NJ Personal Finance, a partner of NJ.com. The information presented here is created independently from the NJ.com editorial staff, and purchases made through links in this article may result in NJ.com earning a commission.
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