Best Bad Credit Personal Loans of April 2024

Bad credit loans are made available for borrowers with poor credit scores of around 579 or lower. It’s harder to qualify for a loan, especially an unsecured personal loan, when you have bad credit.

There are two main types of personal loans: secured and unsecured. Secured loans are backed by collateral, which the lender can seize if the borrower fails to pay on the loan. Unsecured loans do not require collateral. Borrowers with bad credit can still qualify for a personal loan but will likely end up paying a higher interest rate, more fees or both.

• Upstart: Our top pick
• Upgrade: Best discounts
• Avant: Best for customer service
• Universal Credit: Best for fast approval
• OneMain Financial: Best for physical locations

If you need money to pay for an emergency or to consolidate high-interest credit card debt, a bad credit personal loan may be able to help.

Before taking out a loan, see if there are alternative financing options. For example, if you have medical bills, see if you can apply for a hardship assistance program through the medical provider’s billing office.

Personal loans for those with bad credit often have high interest rates and fees, so it’s best to avoid them unless these loans are absolutely necessary. Talk to a financial adviser if you’re struggling to pinpoint your options.

Alternatives to Bad Credit Loans

Determining to take out a personal loan with a bad credit score shouldn’t be a hasty decision. Its potential long-term effect on your personal finances shouldn’t be taken lightly, but if the money is needed, there are alternatives to personal loans that might be better suited for your needs.

Credit Cards

Instead of borrowing money, you could use a credit card, especially if you don’t need a large sum. This could be paired with finding a credit card with a promotional low rate or even 0% APR for a certain time. The key is to pay off your balance before the end of the promotional period, or your APR could be significantly higher than a personal loan. 

Home Equity Loans

A home equity loan or a home equity line of credit (HELOC) could both be options as they typically have lower rates than a personal loan. The repayment period could also be longer as well, which means lower monthly payments but also more interest paid in the long run. It’s also important to note these are secured loans with your house as collateral, so you risk foreclosure if you can’t make your payments.

Peer-to-Peer Lending

These private loans skip the traditional route of going through a financial institution. They might be easier to get if you have poor credit, as lenders look at your overall financial picture before making a decision. The rates are generally competitive, but the fees could be higher and there is less regulation with these types of loans.

Borrowing From Friends/Family

If you want to try and skip the process of going through a bank or private lender, you could always ask those around you for help. They might be sympathetic to your position and work out a deal. However, involving money with friends and family can be tricky, and you wouldn’t want to ruin relationships if you have another avenue.

The difference between choosing the right lender and the wrong lender can be hundreds or even thousands of dollars in total interest over the life of the loan. With so many lenders to choose from, it’s important to use the right criteria to pick the best loan for you.

Some questions to consider before selecting a lender include the following:

• Can I get prequalified without a hard credit check?
• Can I choose my own loan term?
• What is the maximum loan amount?
• What is the APR?
• Are there any origination fees or prepayment penalties?
• What are the available repayment terms?
• Am I eligible for any discounts?
• Are there limits on what I can use the funds for?
• Are there special benefits like a forbearance program or lower payments if I’m having trouble making payments?
• Is it easy to speak with a customer service representative?

How To Boost Your Loan Approval Odds

If you have a poor credit score of below 580, you will probably find it hard to secure a personal loan. There are options, but the rates and fees might be higher than you would prefer. There are ways to boost your odds, however, but they will take time.

• Lower your debt-to-income (DTI) ratio: Your DTI measures the amount of monthly income you have to the amount of debt payments each month. Most lenders would prefer this number to be at 35%, although some go as high as 43%. The less debt you have at the time of applying for a loan, the better your chances will be of approval.
• Raise your credit score: If you know you have a low credit score, take steps to improve that number before applying. Make sure to pay your bills on time, as that has a huge influence on your score. If you don’t know your score, you can check your credit report for free once a year at annualcreditreport.com. Look over your report and fix any mistakes.
• Add a co-signer: Adding someone who has a higher credit score to your loan can help reduce your rates. Some lenders don’t allow a co-signer, so make sure your preferred lender does before taking this step. Note that your co-signer would be responsible for the loan if the primary borrower fails to do so. That lowers the risk for the lender, and therefore your rates.

What Is a Credit Builder Loan?

In addition to making on-time payments with any credit cards or bills you have to help your credit score, another way to increase that number is with a Credit Builder Loan (CBL). A CBL is a loan that is specifically designed to help those with poor or limited credit to increase their score. 

How it works is instead of giving you the money, it is placed in a savings account or a certificate of deposit (CD). The borrower then makes manageable monthly payments toward that amount, and when it is paid off, the money is released to you. 
The companies that do these types of loans, such as Kikoff, report your on-time payments to the three credit bureaus. This helps you demonstrate fiscal responsibility and builds your score to broaden future opportunities.

Our team put together a comprehensive 100-point rating system to evaluate personal loan companies. We gathered data points from 28 of the most prominent lenders in the US and analyzed disclosures, licensing documents, sample loan agreements, marketing materials and websites. Our rating system takes into account four broad categories.

• Affordability (35%): How expensive each company’s loans are to pay back.
• Loan features (35%): The breadth of loan terms and features available to prospective customers.
• Customer experience (20%): Ease of application, prequalification and customer service interactions.
• Company reputation (10%): An exploration of lenders’ Better Business Bureau files, customer reviews and outstanding regulatory actions.

Our top-rated lenders may not be the best fit for all borrowers. To learn more, read our full personal loans methodology.

Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.