How to Get a Personal Loan With Bad Credit

A low credit score doesn’t have to stand in your way of getting a personal loan to cover an emergency or consolidate debts.

Borrowers with bad credit (a 629 or lower score) may need to put in some extra work to qualify, but doing so can help you get approved and could get you a lower interest rate.

» COMPARE: See your bad-credit loan options

1. Check 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, provide free access to your credit score, and annualcreditreport.com offers a free, detailed look at your credit behavior over the years. You may find errors on your report, and fixing them could boost your credit.

2. Compare lenders

No two lenders have the same borrower requirements or rates, so it pays to compare multiple options. The best bad-credit lenders offer a rate you can afford and other helpful features like credit-building tools, fast funding or a mobile app to manage loan payments.

3. Pre-qualify

Pre-qualification shows you what rate, loan amount and repayment term to expect, and it doesn’t affect your credit score. Pre-qualifying is especially useful if you’re trying to determine whether you qualify for a loan and want to compare offers.

4. Add to your application

Co-signed, joint and secured loans can help you qualify or get a lower rate on a personal loan. The lender will consider your co-applicant’s financial and credit information, or the value of any collateral you provide, when determining whether to approve the application and what rate to give you. (More on these options below.)

5. Apply

Gather the documents you need to apply for a loan beforehand to speed up the process. These can include W-2s, pay stubs, financial statements and your Social Security number. Some lenders will give you a decision the same or next day after applying.

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 which options 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 scores. A lender will ask if you’re getting a joint loan during the application process.

• Add collateral. Some lenders offer secured personal loans, which can help you qualify or get a lower rate. Banks and credit unions typically offer investment- or bank-account-secured loans, 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.

» MORE: Tips to boost your chance of personal loan approval

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 consumer-friendly features, like fast funding and advice to help build your credit.

Avoid no-credit-check lenders

It might seem appealing to borrow from a lender that won’t consider your credit score, but these lenders often provide predatory high-interest installment or payday loans.

A lender that doesn’t review information like your credit score isn’t thoroughly assessing your ability to repay. Some lenders that offer no-credit-check loans trap borrowers in a cycle of debt by charging high rates that make payments unaffordable, causing them to borrow again when the payment is due.

If you don’t think you’ll qualify with a lender that checks your credit, consider alternatives. (More on those below.)

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 of 580 or lower, while competitor VantageScore says “subprime” scores are from 300 to 600.

How bad credit affects your personal loan application

A low credit score tells a lender you may have struggled to make payments toward credit cards or other debt 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 annual percentage rate.

Here are the average APRs for borrowers in each credit band.

People in all credit bands can be rejected for a personal loan. A denied application can feel personal, but try to see it as an opportunity to prepare for the next one. Here are steps to take.

• Understand why you were denied. Lenders must disclose the reason for denying your personal loan application, per the Equal Credit Opportunity Act. If you don’t receive an adverse action letter in the mail or via email, you have 60 days to ask for one. It should include the specific reason your application was rejected, giving you a blueprint for approval next time.

• Address the issues. Your income and credit are top factors on an application, so those are good places to start. Consider paying down debts or finding ways to make more money. Common credit-building strategies include making on-time loan and credit card payments, getting a secured credit card and becoming an authorized user on someone else's card.

• Consider alternatives. If you need cash quickly, consider borrowing alternatives like family loans, buy now, pay later plans and cash advance apps.

• Pre-qualify when you’re ready. After a few months spent working on your credit and debt, pre-qualify to see if your chances of approval have increased.

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.

» MORE: How to pay off your medical bills

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.

» MORE: How to borrow from family

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.

» MORE: What is buy now, pay later?

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.

» MORE: Cash advance apps that cover you til 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.

» MORE: Browse NerdWallet’s debt payoff tools