How to Get a Loan with Bad Credit


If you have a history of being late with bill payments or have accumulated a significant amount of debt, your credit score may not be as high as you desire. Having poor credit can be a challenge, especially when it comes to convincing lenders to trust your ability to repay them.

Taking out a personal loan can be a useful solution for covering unexpected expenses or consolidating debt. Despite the fact that a lower credit score often results in higher interest rates, it is still possible to obtain a personal loan with bad credit by taking measures to improve your score and comparing options from multiple lenders.

What is the meaning of having poor credit?

Nearly all Americans have a credit record maintained by one or more credit reporting agencies: TransUnion, Equifax, and Experian. These credit records are used to calculate a credit score, which is a numerical representation of how risky you are as a borrower.

FICO Credit Scores 

Here is a categorization of FICO credit scores used by 90% of creditors and lenders in their lending decisions:

- 300 to 579: Poor 

- 580 to 669: Fair 

- 670 to 739: Good 

- 740 to 799: Very Good 

- 800 to 850: Excellent

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Determining Your Credit Score 


If you have the luxury of time and do not need the funds immediately, it may be more advantageous to focus on improving your credit score rather than taking out a loan with exorbitant interest rates. If you are looking to enhance your credit profile, consider focusing on the following areas:

- Payment History (35% of your FICO score): Your credit score may be negatively impacted if you have a history of missing or being late with credit card payments (referred to as delinquency). Your payment history also includes timely payments on other debt sources, such as car loans and mortgages.

- Credit Utilization (30% of your FICO score): This is the ratio between the amount of available credit you have and the amount you are currently using. This ratio is calculated across all your debt sources, such as multiple credit cards or loans. A higher ratio often indicates to lenders that lending to you may be risky, as you may struggle to make timely payments.

- Length of Credit History (15% of your FICO score): Generally, the longer you have established credit, the more favorable it is for your score. A long history of borrowing and making timely payments builds trust with lenders, giving them confidence that you will repay your debts within the agreed-upon timeframe.

- Types of Credit (10% of your FICO score): Your score takes into account the variety of credit forms you have used, including credit cards and loans, also known as your credit mix. The more diverse your mix of credit types, assuming you have been making payments on time, the better it is for your score.

- New Credit (10% of your FICO score): Your score considers new credit on your account and the number of credit inquiries you have made in the past 12 months. It's best to be cautious when opening new accounts or applying for new loans, especially if you have a short credit history. Applying for too many cards or loans in a short period of time can have a negative impact on your score.

Ways to get a personal loan with bad credit

Being aware of the steps involved in applying for a personal loan will make the process smoother for you. If you have less-than-perfect credit and are considering getting a personal loan, here are 8 things to remember.

- Check Your Credit Report and Score 

Before applying for a personal loan, it's important to thoroughly examine your credit report and score.

Under federal law, you are entitled to receive one free credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion, every 12 months. You can request your free credit reports at These reports do not show your credit scores, but you can view them for free on the websites of Equifax or Experian, or for a nominal fee on TransUnion's website.

Having access to your credit report will give you an accurate representation of your credit score, as well as any negative marks on your record. If you notice any errors or outdated debt on your report, you can work to correct them before applying for a personal loan.

- Ensure that you can repay the loan

Before applying for a personal loan, make sure you have the ability to repay it. Taking out a loan that you cannot pay back will only harm your credit score further. As you compare loan options, be sure to understand the monthly payment amounts and their due dates. Utilize a personal loan calculator from Bankrate to calculate estimated monthly payments and review your budget to create a repayment plan.

- Compare bad credit loans

Even though having a poor credit score may not allow you to receive the most favorable interest rates and terms, it does not mean that only the worst options will be available to you. You may be able to secure a better offer from your local bank or credit union. Building a relationship with a community bank or credit union can be beneficial as they may take into account your history of making timely payments and maintaining a balance in your accounts, despite your low credit score.

- Get prequalified

Prequalification, which is sometimes used interchangeably with preapproval, allows you to determine your likely eligibility for a loan. By providing your information to the lender, you can find out if you have been preapproved through a soft credit inquiry.

This is important to note because a lending institution typically performs a hard credit check when you apply for a loan. This hard credit check can cause a temporary decrease in your credit score, which can be frustrating if you are denied the loan after the hard credit check has been performed. This could lead to a lower credit score when applying for other loans.

It's a good idea to speak with potential lenders about getting prequalified for a personal loan. This way, you can assess multiple loan options without multiple hard credit inquiries affecting your credit score. Some lenders may even offer the prequalification process online, which can be completed in just a few minutes.

When comparing your loan options, it's important to consider both the interest rates and loan terms offered. It's also crucial to evaluate any fees, such as origination fees and prepayment penalties, that the lender may charge. In some cases, a loan with a lower interest rate may not be the best option if the lender's fees are higher.

- Look into secured loans

A secured loan is a type of loan that is backed by assets such as a home or a car. As these loans use collateral to secure the loan, they generally have more favorable interest rates compared to unsecured loans. If you have collateral to support your loan, this could be a good option if you have a poor credit score.

If you decide that a secured loan is a viable option, it's a good idea to shop around and compare different lenders that offer these types of loans. Keep in mind that with a secured loan, you risk losing your asset if you fail to make your loan payments on time. Therefore, only consider this option if you are confident in your ability to make timely loan payments.

- Add a co-signer if necessary

A co-signer is an individual who joins you in the loan agreement, committing to repay the loan if you are unable to do so. If you are having difficulty being approved for a loan, a co-signer with a better credit score and credit history may help increase your chances of getting approved. However, it's important to verify with the lender whether co-signers are allowed, as not all lenders permit them.

Having a co-signer for a loan can potentially strain personal relationships if you struggle to repay the loan. Thus, it's crucial to have a clear understanding of the terms and responsibilities involved before making the decision to take out a loan with a co-signer.

- Gather financial documents

Before you start applying for loans, make sure you have gathered all the necessary financial documents and information the lender may request. These may include:

  1. Personal contact information, such as your social security number, full name, and address
  2. A valid form of personal identification, such as a driver's license
  3. Information about the personal loan, such as the reason for the loan and the desired loan term
  4. W-2 forms from the last two years
  5. Your federal tax return from the last two years
  6. Bank statements from the last two months for all your bank accounts
  7. Recent pay stubs
  8. Utility bills or mortgage statement to verify your address
It's important to note that lenders may request additional documents, so be prepared to provide any additional information they may require promptly.

- Be prepared for a hard credit check
When you're prepared to apply for a personal loan, keep in mind that the lender will probably conduct a hard credit check, also known as a hard pull. This can temporarily lower your credit score in the short term. If you apply for too many loans in a short period of time, it may appear that you're applying for loans that you can't afford.

Therefore, be mindful of the number of loans you apply for and expect your credit score to decrease temporarily when you apply for a loan. However, by making timely payments on your loan, you should be able to recover your credit score in a few months.

- Look for a lender without credit score requirements

There are some lenders who don't have credit score requirements, which makes it easier for you to find a personal loan even if your credit score is low. However, it's important to note that these lenders specialize in high-risk loans and therefore charge a very high interest rate to cover their risk. Before taking out a personal loan from one of these lenders, make sure that the purpose of the loan is worth the added cost of the high interest rate.

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Types of bad credit loans


If you have bad credit, there are several loan options that may be suitable for you. Personal loans are not the only choice. As you explore your options, consider the following loan types:

- Bank Loan: If you have an established relationship with your bank, they may be willing to provide you with a short-term loan until you improve your credit score. It's always worth asking.

- Cash Advance: You can withdraw cash using your credit card by taking a cash advance. Most credit cards have restrictions on the amount of cash you can withdraw. Keep in mind that you will be charged interest on any cash advances you take, and the interest rates for cash advances are typically higher than for other credit card transactions.

- Home Equity Loan: A home equity loan is a type of loan that allows you to borrow against the equity in your home, using it as collateral. You receive the loan amount in one lump sum and repay it in monthly installments.

- Home Equity Line of Credit (HELOC): A HELOC is an option only if the balance on your primary residence mortgage is significantly lower than the value of your home. As its name suggests, a HELOC is a revolving line of credit similar to a credit card. You will have a limit based on the equity you have in your home, and you will only be charged interest on the purchases you make using the line.

- Installment Loan: An installment loan, which is a type of personal loan, allows you to borrow a specific amount of money and repay it over a specified period of time. Unlike a credit card, where you have access to a revolving credit line and are charged interest based on the amount you use, an installment loan provides you with a lump sum upfront, and you make fixed payments for a set number of months.

- Payday Loan: A payday loan is a small loan with a short repayment term, typically due by your next paycheck. These loans usually have high interest rates and must be repaid in a single lump-sum payment. Payday loans are expensive and not always the best choice.

- Peer-to-Peer (P2P) Loan: Peer-to-peer lending is another alternative to traditional loans that may be suitable for people with bad credit. Most P2P lending occurs through online personal loan lenders, such as Prosper or LendingClub. With P2P lending, you apply for a loan in the same manner as with a traditional loan, but the loan is funded by individual investors instead of the lender itself.

- Secured Personal Loan: A secured personal loan requires you to use an asset as collateral, such as your home or car. If you are unable to repay the loan, the lender has the right to take ownership of the collateral. Secured personal loans typically come with more favorable rates and terms compared to unsecured loans.

- Student Loan: You can apply for both federal and private student loans to help fund your college education. Federal student loans tend to have better terms and rates than private student loans.

- Unsecured Personal Loan: An unsecured personal loan does not require any collateral from the borrower. Although the rates and terms are not as favorable as those of secured loans, unsecured loans offer an option if you do not have any assets to use as collateral.

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What to consider before getting a loan with bad credit


When considering the various expenses and risks associated with a personal loan, it's important to keep in mind the following factors for loans for individuals with poor credit:

The cost of a loan increases with a low credit score

If you have a low credit score, be aware that you will likely have to pay a higher interest rate compared to someone with a higher credit score. This is because lenders assess the risk of you repaying the loan by looking at your credit score and determining your creditworthiness. A lower credit score signals higher risk, and therefore, a higher interest rate is charged.

Be cautious of predatory lenders targeting individuals with low credit scores

They may offer seemingly attractive personal loan options with low introductory interest rates of around 6% to 8%. However, once the limited-time offer expires, the rates can significantly increase to 20% to 30%, which is higher than what is typically offered by reputable lenders. Make sure to have a plan for prompt repayment to avoid paying the higher rates.

Be cautious of hidden fees in the loan agreement 

When applying for a loan with bad credit, it is important to be aware of all the costs associated with the loan. Make sure to thoroughly read the loan agreement and understand how the interest will be calculated and structured. Pay attention to the annual interest rate, rather than the monthly rate.

Additionally, be cautious of any hidden fees or add-on services that may be included in the agreement. Make sure to closely examine the fine print to avoid any unexpected charges. It is important to fully understand the terms and conditions of the loan before signing on the dotted line.

Where to get a loan with bad credit


Obtaining a loan can be difficult if you have a low credit score, but it's not impossible. Online lenders and a limited number of banks and credit unions offer loans specifically designed for individuals with bad credit.

Some of the lenders that cater to individuals with poor credit include Upstart, OneMain Financial, Avant, LendingPoint and Upgrade. The minimum credit score required by these lenders usually begins at 560, but it's important to note that the requirements may differ between lenders, so it's crucial to conduct a thorough research and consider all of your options.

In many situations, loans for individuals with poor credit are secured, meaning they require collateral such as a car or home to be pledged as security. However, there are also unsecured loan options for people with subprime credit, which usually come with higher interest rates.

When you are looking for a loan, it is advisable to steer clear of payday loans and loans that do not require a credit check. These types of loans are usually targeted towards those with bad credit and have extremely high interest rates and fees that can lead to debt traps and become difficult to escape from.


Obtaining a personal loan with poor credit is more challenging and costly compared to obtaining one with a good credit score. It is crucial to conduct thorough research and compare various options to ensure that you receive the most favorable rate.

Getting pre-qualified can give you an idea of the potential rates without causing further harm to your credit with a hard inquiry. If you have the ability to provide collateral or secure a co-signer, it can increase your chances of getting approved for a personal loan with better interest rates.

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