How to Get a Personal Loan With Bad Credit

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.

» COMPARE: See your bad-credit loan options

How to determine your credit rating

Lenders typically have a minimum credit score requirement, and you could be rejected if your score falls below it, so it’s a good idea to review your credit before you shop.

Credit scores range from 300 to 850. A bad credit score generally ranges between 300 to 629, but lenders and credit scoring companies may have their own definitions of “poor credit.” FICO, for example, considers a “poor” credit score below 580. 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 for a personal loan.

How to get a loan with bad credit

1. Review your income and other debts

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.

2. Understand the costs: Calculate your monthly payments

Use a personal loan calculator to see how different loan amounts, terms and annual percentage rates (APRs) 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.

3. Compare bad credit lenders and get prequalified

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. Some lenders’ minimum credit score requirements start at 560 — well within the bad credit range — while others only accept applicants with scores in the 700s or 800s.

• Loan details. Compare APRs, loan amounts and repayment terms to find lenders that offer the loan you need. Personal loan APRs are from 6% to 36%, but bad credit loan APRs are likely to be on the high end of that range. Loan amounts can reach up to $100,000 for qualified borrowers, but bad-credit lenders tend to cap loans at $50,000. Repayment terms are typically one to five years.

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

» MORE: Compare personal loans

Pre-qualification lets you see your potential loan rate, term, amount and monthly payment. 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. Pre-qualification only triggers a soft pull on your credit, meaning that this process won’t impact your credit score.

Compare bad-credit lenders

4. Gather necessary loan documents

Gather the documents you need to apply for a personal loan beforehand to speed up the process. These can include:

• Government-issued  ID such as a driver’s license.

• Social Security number.

• Recent pay stubs.

• W-2 forms.

• Federal income tax forms.

• Recent statements from your bank accounts.

5. Submit a loan application

Once you’ve pre-qualified and chosen an offer, it’s time to submit a formal application.

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.

Expected interest rates for a loan with bad credit

Interest rates and terms can vary based on your credit score, debt-to-income ratio and other factors.

With a lower credit score, there are three factors that you will likely face:

• Interest rates will be higher. Lenders typically charge higher APRs for borrowers with low credit scores, as the chart below shows.

• The loan amount will be lower. Loan providers typically will approve a lower amount of cash to customers with poor credit ratings.

• Loan repayment period may be shorter. Providers will likely offer shorter repayment terms based on clients who have “poor” or “bad” credit ratings.

How to improve your chances of getting a 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.

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

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.

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 ^[0]

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 ^[0]

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.

» 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 somewhat 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

How to spot scams for bad credit loans

Unfortunately, bad actors are attuned to those who need loans with bad credit, and may proactively try to get you to sign up for a loan that puts your finances in jeopardy.

Here are some signs of personal loan scams:

• Out-of-the-blue calls or text offers for loans. If you receive a phone call or text with a personal loan offer from a provider with whom you’ve had no previous contact, treat with extreme suspicion. 

• Loan offers asking for money upfront. No credible loan originator will ask you to pay money or purchase gift cards before receiving a loan. It’s a sure sign of a scam.

• Advertisements that tout ‘guaranteed approval’ for a loan. As nice as that sounds, no credible loan provider would guarantee you cash before going through an approval process.