How to Get a Personal Loan With Bad Credit

Bad-credit borrowers may have to take extra steps to qualify for a personal loan or to get a better rate.
Annie Millerbernd
By Annie Millerbernd 
Updated
Edited by Kim Lowe
You Don’t Need Perfect Credit to Get a Personal Loan

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A low credit score doesn’t have to keep you from getting a personal loan to cover an emergency or consolidate debts, but borrowers with bad credit scores (629 or lower) may need to put in extra work to qualify.

Here are the steps to get a personal loan with bad credit, tips to boost your chances of approval and alternatives to consider.

How to get a loan with bad credit

1. Pull your credit

Lenders typically have a minimum credit score requirement, and you could be rejected if your score falls below it. Many financial companies, including NerdWallet, let you access your credit score for free.

Pull your full credit report for a detailed look at your credit behavior over the years. This is what a lender will see when you apply for a loan. You can view your report from all three bureaus (Equifax, Experian and TransUnion) for free at AnnualCreditReport.com.

Try to address any red flags, like a delinquent account you weren’t aware of or a credit inquiry you didn’t approve, before applying.

It may take a month or two to resolve any issues, but doing so could improve your chances of approval or lower your rate on a personal loan.

2. Review your finances

Personal loan lenders like to see that you have at least enough income to cover your monthly bills and other debt payments plus a new loan payment.

Lenders use debt-to-income ratio (DTI) to assess your ability to repay a loan. This is the percent of your monthly income that goes to debt payments, and lenders typically like to see it below 50%.

Calculate your DTI and review your monthly budget to see how much room you have left for a new loan payment. Ideally, the loan payments fit comfortably into your budget and leave room for savings and emergency expenses.

3. Calculate your monthly payments

Use a personal loan calculator to see how different loan amounts, terms and annual percentage rates affect monthly payments.

This will help you understand what adjustments you may need to make to the loan amount and repayment term in order to get a payment you can afford.

4. Compare lenders

No two lenders have the same borrower requirements, rates or features, so it pays to compare multiple options, including online lenders and credit unions. Here’s what to look for:

  • Requirements. Research lenders’ qualification requirements, like minimum credit score and maximum DTI, to determine whether you’d qualify.

  • Loan details. Compare APRs, loan amounts and repayment terms to find lenders that offer the loan you need. 

  • Other features. Review helpful loan features, such as credit-building tools, fast funding and secured and joint loan options, to find the right fit.

5. Pre-qualify with a soft credit pull

Pre-qualification lets you see your potential loan rate, term, amount and monthly payment without affecting your credit score. Lenders often show pre-qualified applicants multiple loan offers with different loan amounts and terms.

Pre-qualify with multiple lenders to find the loan with the lowest rate and monthly payments that fit your budget.

6. Apply with a hard credit pull

Once you’ve pre-qualified and chosen an offer, it’s time to submit a formal application. Gather the documents you need to apply for a personal loan beforehand to speed up the process. These can include W-2s, pay stubs and financial statements.

An online application can take a few minutes, while applying over the phone or in person may take longer. At this stage, the lender will do a hard credit check, which temporarily lowers your credit score.

Assuming the lender doesn’t require extra documentation, you’ll likely receive a loan decision the same or next day after applying. Most lenders can send loan funds a day or two after approval.

7. Make on-time payments to build credit

Almost all personal loan lenders report payments to the three major credit bureaus, so on-time payments can build your credit score, but missed payments will hurt it.

Tip to avoid missed or late payments: Add them to your monthly budget and set up automatic payments. The latter gets you a small rate discount with some lenders.

Comparing options? See if you pre-qualify for a personal loan - without affecting your credit score
Just answer a few questions to get personalized rate estimates from multiple lenders.

on NerdWallet

Tips to get a approved for a personal loan with bad credit

Borrowers with the lowest credit scores — below 550 — are unlikely to qualify for most personal loans. However, bad-credit borrowers can bolster their applications in a few ways, depending on what the lender offers.

  • Add a co-signer. If a trusted friend or family member has better credit and stronger income than you, they may make a good co-signer. A lender considers both of your financial and credit profiles on a co-signed loan application. A co-signer can’t access loan funds or payment information, but promises to repay the loan if the borrower doesn’t. If you fail to make payments, both of your credit scores will suffer. A lender may offer this option only if you don’t qualify for the loan on your own.

  • Add a co-borrower. A co-borrower is similar to a co-signer — their credit and income is considered with yours on a personal loan application — but they can access loan funds and payment information. Both borrowers are equally responsible for the loan, so late or missed payments affect both of your credit scores. If a lender offers joint loans, you’ll be asked to enter your co-borrower’s information when you apply.

  • Add collateral. Some lenders offer secured personal loans, which can help you qualify or get a lower rate. Banks and credit unions typically let borrowers use investment or bank accounts as collateral, while online lenders provide auto-secured loans. If you fail to repay a secured loan, the lender can take your collateral — and your credit score will take a hit — so weigh the benefits of getting the loan against the risk of losing the account or vehicle.

  • Include all sources of income. Many lenders let you include non-employment income on an application, including alimony, child support, retirement or Social Security payments. Lenders prefer borrowers who can comfortably make loan payments, so a higher income may mean a better chance of approval.

  • Ask for a small loan. It’s best to only ask for what you need and can afford to repay. If a lender thinks the loan amount you requested would overextend your finances, your application is more likely to be declined.

Where to get a personal loan with bad credit

Credit unions

You must be a member of a credit union to borrow from it, but they’re one of the best places to turn if you have bad credit.

Credit unions consider a loan applicant’s history as a member when making a decision, which means a good relationship with the credit union could help with approval.

You may also get a lower rate at a federally-chartered credit union because they cap annual percentage rates at 18%. Rates from other lenders can reach 36%.

Online lenders

Some online lenders, like Avant and Universal Credit, lend to bad-credit borrowers. Online lenders may include helpful features like fast funding and advice to help build your credit.

🤓Nerdy Tip

Some lenders tack on an origination fee that’s usually 1% to 10% of the loan amount and is included in your APR. Lenders either take the fee from the loan before depositing the funds into your account, effectively reducing the loan amount, or add it to your monthly loan payments. If you’re charged an origination fee, be sure the loan amount is still enough to cover your expense and the payments are still affordable.

Bad credit loans to avoid

Predatory lenders take advantage of consumers with low credit scores who need cash by charging high interest rates for no-credit-check loans. Though you can easily get a short-term loan from one of these lenders, they may intentionally make their loans difficult to repay, effectively keeping you in debt.

Payday lenders

Payday loans are small loans of a few hundred dollars that you get without a credit check and agree to repay along with a fee on your next payday. Payday loans are notoriously difficult to repay because the fees are exorbitant — about $10 to $30 per $100 borrowed, according to the Consumer Financial Protection Bureau.

Consumer Financial Protection Bureau. What are the costs and fees for a payday loan?. Accessed Sep 27, 2023.

Borrowers who can’t repay payday loans typically take another loan to repay the first, thus entering a cycle of debt.

High-interest installment lenders

A high-interest installment loan can be just as damaging to your finances as a payday loan. These lenders charge double- or triple-digit APRs on loans of a few hundred or thousand dollars with terms between a few months and a few years.

If a borrower can’t make the high monthly payment, the lender may offer to refinance the loan and extend the repayment term. This process can be done multiple times and result in the borrower paying as much in interest as the amount borrowed, if not more, according to a study from the Center for Responsible Lending.

Frequently asked questions

Bad credit is generally marked by a score below 630. Lenders may have their own definitions of bad credit, depending on which credit score company and version they use and other information they consider on an application. For example, some lenders review many factors about an applicant and generate an internal score to determine whether they qualify.

Credit scoring company FICO defines “poor” credit as a score below 580, while competitor VantageScore says “subprime” scores are from 300 to 600.

A low credit score tells a lender you may have struggled to make payments toward credit cards or other debts in the past, so the lender may be taking on more risk by loaning you money. This would cause the lender to deny your application or approve a small loan at a high APR.

Secured, co-signed and joint loans are the easiest to get with bad credit. A secured loan requires collateral like a car or savings account, which the lender can take if you fail to repay. A co-signed or joint loan requires you to add someone with better income and credit to the application. The co-applicant is responsible if you miss payments.

A personal loan applicant can be disqualified for having a credit score that’s too low, insufficient income, too much outstanding debt or short credit history. If you are rejected for a personal loan, the lender must tell you why, according to the Equal Credit Opportunity Act.

Bad-credit lenders typically provide loans for $1,000 to $50,000, but the loan amount you qualify for depends on your credit, income and existing debts. The best way to determine how much you qualify for is to check your rate with a lender that offers pre-qualification.

It’s unlikely that you’ll qualify for a personal loan with a 500 credit score. Most lenders require a score above 600. The lowest minimum credit score among lenders that NerdWallet reviews is 560, though some bad-credit lenders don’t disclose a minimum credit score. You can pre-qualify with multiple lenders to check for offers without impacting your score.

Alternatives to personal loans for bad credit

If a personal loan isn’t an option, consider these alternatives, which may not require a credit check to qualify.

Hardship programs. Lowering or pausing monthly credit card, mortgage, rent or utility payments may free up enough cash to bridge an income gap. Credit card issuers, mortgage lenders and utility companies often have online hardship applications, but you may have to go to a landlord directly.

Medical bill assistance. If you’ve received a big doctor or hospital bill, you may not have to pay it right away. Options like payment plans through your provider’s office, medical credit cards and medical bill advocates could ease the burden.

Family loans. Borrowing money from friends and family can be tricky, but the benefits may outweigh the risks. Family loans don’t require a credit check, can cost little or no interest and can be repaid on terms that work for the borrower and lender. Set up a detailed family loan agreement to ensure repayment goes smoothly.

Buy now, pay later. A “buy now, pay later” loan can finance a large, necessary purchase without a hard credit check or interest charges. This at-checkout financing option typically requires you to pay a quarter of the cost up front and the rest in three, equal bi-weekly installments.

Cash advance apps. Apps like EarnIn and Dave provide paycheck advances up to a few hundred dollars with no credit check and low fees. Instead, the app uses bank account information to decide how much to advance, and you typically repay it on your next payday.

Debt payoff options. If you’re struggling to pay down debt, consider repayment options like the snowball and avalanche methods or a debt management plan.

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