If you have bad credit or no credit, a high-interest loan can seem like your only option to finance an unexpected expense. But a loan with a high interest rate could trap you in a cycle of debt and make the situation worse.
Explore cheaper options before getting a loan with a high interest rate. If you do get a high-interest loan, learn what to look for to ensure the loan helps more than it hurts.
What are high-interest loans?
A high-interest loan has an annual percentage rate above 36%, which is the highest APR that most consumer advocates consider affordable. High-interest loans are offered by online and storefront lenders that promise fast funding and easy applications, sometimes without checking your credit.
High-interest loans are usually a few thousand dollars or less. Some are short-term payday loans, and others are installment loans with amounts up to $10,000 and repayment terms from two to three years.
How high-interest loans are harmful
Consumer advocates say high APRs and short terms lead to large loan payments that can be difficult to make on time. Depending on the interest rate and repayment term, you may pay more in interest than the amount you initially borrowed.
If you can’t repay, a high-interest lender may offer to refinance your loan. This often means getting a new, larger loan or one with a longer term, leaving you paying more over an extended period.
How much interest is too much?
One way to tell if a loan is too expensive is to look at the monthly payment. Use the calculator below to see an estimated payment based on loan amount, term and rate. According to NerdWallet data that tracks pre-qualified rates on high-interest loans, borrowers with fair or bad credit (scores of 630 or lower) can expect rates around 150%.
Review your monthly expenses to see whether there’s room for these loan payments. If it’s a tight squeeze, taking the loan may be a risky move.
💡Small-loan payments should take up no more than 5% of your pre-tax monthly income, according to the Pew Charitable Trusts.
High-interest loan examples
Here are four lenders that provide high-interest loans, plus the monthly payment and total interest costs on a 12-month, $2,000 loan at the lenders’ maximum APRs.
By contrast, with a 36% APR, the monthly payment on that loan would be $201, and you’d pay $411 in total interest.
What to look for in a high-interest loan
If the only loan you qualify for has a high APR, look for a lender that:
Discloses the APR. By law, a lender must disclose the APR before you sign a loan agreement. You can use the APR to compare the full cost of one loan to another.
Checks your credit. Even if it’s just a soft pull, a lender that reviews your credit is making an effort to see whether you can repay the loan.
Puts payments toward the principal. Monthly payments should pay down principal and interest. Interest-only payments don’t reduce the loan’s principal, so interest continues to accrue at the same rate. Check the loan’s amortization schedule before you agree to borrow. Make sure each month’s principal payment is more than $0 and that the amount you owe decreases each month.
Reports payments. The lender should report your monthly payments to at least one — but ideally all three — of the major credit bureaus. If your payments are on time, this reporting can help your credit.
Best alternatives to high-interest loans
A personal loan with an APR below 36% may be a more affordable option. These loans are often larger than high-interest loans and are repaid over years instead of months. Their lower rates mean you pay less to borrow the money.
Lenders typically require a credit check to apply, but you can find installment loans for bad credit (scores below 630).
» MORE: Compare loans for bad credit
Lenders that may accept borrowers with bad credit
The lenders below cap APRs at 36% or lower and have low credit score requirements.
Upgrade personal loans can be as small as $1,000, and the lender offers access to credit-building features, like free credit health insights. Upgrade also offers auto-secured loans, meaning you can use a vehicle you own as collateral to improve your chances of qualifying or getting a lower rate.
Universal Credit loans are similar to Upgrade’s but have a lower minimum credit score requirement (560 vs. 600). Loans can be approved and funded in as little as one day, and you can get a rate discount for setting up automatic payments.
Avant can approve borrowers with a minimum credit score of 550 and a minimum monthly net income of $1,200. The lender says it can fund most loans in one business day after approval.
Credit unions can approve bad-credit borrowers by looking beyond a credit score to the whole financial picture, including an applicant’s relationship with the credit union. Federal credit unions cap APRs at 18%, and some offer small loans of a few hundred dollars. For example, PenFed personal loans start at $600, while Navy Federal offers loans as small as $250.
Payday alternative loans are another small-dollar credit union offering. These loans can be up to $2,000, have repayment terms of a few months to a year and have maximum APRs of 28%.
Lenders for those with thin or no credit history
Lenders that cater to borrowers with thin or no credit history consider other information to qualify them, like cash flow and employment.
Upstart can approve borrowers with credit histories that are too thin to produce a credit score. The lender uses information such as where you live and work, your education and whatever credit history is available to make a loan decision.
Oportun provides unsecured loans of $300 to $10,000 to borrowers with bad or no credit. To qualify you, Oportun reviews income and expenses. You can boost your chances of qualifying by adding a co-borrower or co-applicant to your loan or, in some states, securing your loan with collateral.
Capital Good Fund is a nonprofit lender that could help you cover emergency expenses or basic needs with its low-rate Impact Loans. You must live in Connecticut, Florida, New Jersey, Rhode Island or Texas to qualify.
Other borrowing alternatives
An informal agreement or nonborrowing alternative may be an interest-free solution in an emergency or financial hardship.
Family loans or money borrowed from someone you trust can help you bridge an income gap without a credit check. Draw up a contract that includes interest and a payment schedule so the terms are clear to both parties.
Payment plans are a useful way to split payments toward your utilities, rent, credit cards or medical bills. Your utility company, mortgage lender and credit card issuer may have a formal application for payment deferral or hardship plans, but you may have to ask your doctor’s office or landlord directly.
Local charities and nonprofits may help you get clothing, food or transportation. These organizations can include food banks and religious organizations, and some can help you cover emergency expenses or utility bills. Call the 211 hotline to find out what resources are available near you.
Article sources
- 1.Pew Charitable Trusts. Payday Lending in America: Policy Solutions. Accessed Oct 27, 2026.
