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How to get a personal loan with bad credit
A personal loan can be a quick way to get cash. Best of all, the loan purpose can be for just about anything. It might be for debt consolidation for high-interest credit cards — or an urgent financial situation that demands cash.
And you may be able to qualify for a personal loan, even if you have a sketchy credit history.
What credit score do you need for a personal loan?
Nearly three out of four unsecured personal loans were granted to consumers in the lowest credit score ranges in 2022 (VantageScores from 300-600), according to TransUnion.
You'll want to know your credit score before jumping into the application process to understand what you might face. One complication: There are dozens of variations of consumer credit scores. In fact, the credit score reported to you is likely to be slightly different than those lenders may be referencing.
FICO scores, developed decades ago by the Fair Isaac Corporation, are the most common credit scores, but vary according to the version used. Most often, the minimum credit score is 300 all the way up to a high of 850. Experian data reported the average FICO score was 714 in 2022.
Here's a breakdown of credit score ranges from low to high, with the percentage of Americans within each range, as of 2020:
FICO credit score ranges
300-579 Poor (16%)
580-669 Fair (17%)
670-739 Good (21%)
740-799 Very good (25%)
800-850 Exceptional (21%)
2020 Experian data reported that two thirds (67%) of Americans had a "good" or better FICO score.
Tip: Before making a loan application, check your credit report from at least one of the three major credit bureaus in addition to your credit score. Look for errors in your payment history that might be contributing to your poor credit. Correcting your credit profile can boost your creditworthiness.
Estimate your personal loan payment
The next step in gaining a bad credit loan: use a loan calculator to estimate your monthly payment. Before taking on any new credit, you want to do a legit reality check to ensure you can afford the payments due.
In the calculator, input the loan amount, an estimated interest rate, and the number of months for the repayment period. You can keep adjusting the inputs to work the numbers into a loan option you'll be comfortable with.
Remember, debt is a long-term commitment. Spending the money loaned to you goes quickly. Paying it back takes time. One benchmark financial institutions will consider when determining your loan rate is your debt-to-income ratio. That’s the total of your monthly debt payments divided by your gross (before taxes and other deductions) monthly income.
Research personal loan lenders
Plenty of providers are looking to lend money, even if you have a bad credit score — each has pros and cons. Gathering loan offers and finding the right lender for you can help you prequalify with better loan terms.
For the best bad credit loan, look for a loan company offering the lowest annual percentage rate, the most suitable repayment terms, and, if possible, an autopay discount. The best personal loans have no prepayment penalty or origination fees.
Local banks: If you have a bank account with a local bank, you may be able to leverage that relationship with a personal loan. Each financial institution has its own personality — from national megabanks to small, local institutions. Eligibility requirements for borrowers with low credit scores vary widely.
Credit unions: Credit unions can have a hometown touch, fast funding, and generally lower interest rates. Again, your experience can run the gamut, but credit unions are nonprofit and owned by their members, so they are well worth a visit.
Online lenders: We're spoiled by the seamless transactional nature of most everything online. While online lenders can offer speedy prequalification and possibly next-day funding, they are quick to say yes — or no. Look for a prequalification process with an online application and a soft credit check that won’t impact your credit report.
Consider a secured personal loan
If you find interest rates are too high with an unsecured personal loan, or getting approved is proving difficult, consider a secured personal loan. That means you'll put up something of value to guarantee the loan. It could be a paid-off vehicle, a savings account, a certificate of deposit, or any other loan-worthy asset you're willing to pledge as collateral.
Of course, with a secured loan, you're putting that property on the line and risk it being seized by a lender if you can't repay the loan, so definitely consider the downside.
Use a cosigner
If approval still eludes you, a cosigner might be an option, but that's no small ask. As a co-borrower, a close friend or family member puts their creditworthiness on the line to guarantee the loan. Putting their signature on the loan documents means they'll have to pay the loan off if you can't.
Other options
While none of the following may be perfect solutions, they may be preferred over taking on a personal loan with bad credit.
Family and friends may be willing to give you a financial boost. It's never a comfortable conversation, but with a firm plan for repayment, it might be a workable solution.
A cash advance on a credit card may have an interest rate as high or higher than a personal loan, but if you have a solid repayment history with the card provider, it could be a quick funding source.
A home equity loan or line of credit uses the value of your home above and beyond what you owe on a mortgage. If you've been in your home for a while, you may have enough equity to pull some of that cash out.
Peer-to-peer lenders such as Prosper, Kiva, Upstart, and Lending Club are networks of individual lenders that can have flexible approval standards. They might also have high interest rates, so shop carefully.
Ask for a raise. Making more money on a regular basis can be even more powerful than borrowing. Show your employer added value, and you may be in line for a bump in pay.
Consider a side gig. Extra money from a side hustle can boost your annual income and solve cash flow problems. If you've got the time and the means (such as a reliable vehicle), you may be able to generate income from the extra effort. Food and grocery delivery, ride-sharing, tutoring, lawn services and pet sitting are just a few ideas.
Caution
Money pressure builds anxiety. You don't want to succumb to that stress by making things worse. Some predatory lenders may seem like a quick and easy solution, but it's easy to get into a vicious cycle of recurring debt. Use caution with:
Payday loans are notorious for astronomical interest rates and triggering a rollover from one loan into the next, compounding fees and prolonging debt.
No-credit-check lenders offer loans without a credit score qualification. It can be another trap offering a little cash for large fees.
Lenders with too-good-to-be-true teaser rates. Be wary of low-interest "introductory" rates that lure you into a loan that is rarely paid off before the high rates kick in.
Take a moment
Before signing up for a personal loan, take a moment and think through the possible outcomes. If you have bad credit, you're likely to pay a higher interest rate than if you waited until you resolved some of your current credit issues.
Ask yourself: When your credit score is under pressure, is taking on more debt the right financial move now? Can the cash need be delayed, or is this truly an emergency?