Whether you have perfect credit or a less-than-ideal score, when you need cash, personal loans are often the right and only option. As anyone who has been there can tell you, finding loans with bad credit is not only difficult, it can be downright impossible. For most honest borrowers, it is possible to responsibly and securely borrow money with bad credit from reputable online lenders and even some physical banks, provided they know where to go and what to do. Here’s our rundown of the process as well as a review of some of the most popular options available for bad credit loans today.
How to Get a Loan with Bad Credit
First thing’s first: in the lending world, a so-called “bad” credit score is a rock bottom number. If your score falls below this rock bottom, which is usually 600, most lenders won’t work with you. Although it is certainly possible to get some kind of loan with a lower score than that, the options are generally limited to payday loans, which are notorious for their high interest and low terms, but more on that later.
When you’re hunting down loans for poor credit, it’s important to understand what a credit score means and the process lenders take in order to make a lending decision. Here are some common questions and answers to consider:
Q: What is a poor credit score? Why is mine so low?
A: Your credit score is a three-digit number between 300-850 that tells lenders and others, at a glance, about your financial past. In general, lenders consider “poor credit” to be any number below 600, but many won’t lend to anyone with a score below about 630.
Factors such as your debt-to-income ratio, current accounts in good standing, and past mistakes — missed payments, late payments, defaults and bankruptcies — all combine to form a credit score. A combination of poor financial management and mistakes now or in the past contributes to your overall score, although items such as bankruptcies disappear from your record after a set period of time (seven to ten years).
Q: How can I make my credit score better?
A: You can improve your credit score or prevent it from falling into the poor range by making on-time payments on all loans and credit cards, maintaining a healthy balance between your debt and income or assets, and generally managing your finances in a responsible way. In fact, for most borrowers, the best solution for getting a loan with bad credit is to wait six months, improve the score and try again. The best course of action is to pay off or resolve any delinquent accounts or collection accounts that you have on your credit report.
Q: If I need a loan right now, then what can I do?
A: It is possible to get a loan even with poor credit, but loans for people with poor credit come with much higher interest rates and stricter lending requirements, which make responsible repayment all the more important. If you can afford to wait until your credit score is higher, then it is not only easier to get a loan, it ends up costing you less in the long run.
Lenders that Accept Poor Credit Scores
If you just need the money and cannot wait, there are plenty of unsecured loans for people with poor credit available out there. Not all are created equally and not all offer fair terms. Some lenders, however, including Avant, PeerForm and LendingPoints are helpful. They offer personal loan options that require minimum credit scores as low as 600 and provide flexible options for borrowers that can actually help improve their credit score over time while also getting them the money they need.
Focusing its business on borrowers with an average credit score between 600 and 700, Avant loans are fully funded by WebBank, making it possible to get the money as early as the same or next business day as the application, which is nice when you need cash fast. Available in most states, Avant offers pretty high loan amounts (up to $35,000) with rates as low as 9.95% APR. They follow a fully transparent fee structure that means no early repayment fees, helping borrowers fully understand and repay their loans on time.
Avant Personal Loan Details
- Minimum Credit Score: 580
- Loan Amounts: $2,000-$35,000
- APR: 9.95%-35.99%
- Term: 24-60 months
A well-known entity in the peer-to-peer lending market, PeerForm caters to subprime (poor credit) borrowers. The average PeerForm customer has a 665 credit score. PeerForm is an investor-funded platform, meaning other people have to choose to fund your loan, so it may take some additional time to receive the money. The good news is that its proprietary grading system takes into account more than just credit score, meaning that those with lower scores but higher income, for example, may generate more favorable loan terms.
PeerForm Personal Loan Details
- Minimum Credit Score: 600
- Loan Amounts: $4,000-$25,000
- APR: 5.99%-29.99%
- Term: 36 months
- Origination Fee: 1%-5%, depending on PeerForm grade
With a tagline that states “Your Score Is Not Your Story,” it’s clear that LendingPoint is open to those with less than stellar credit. In fact, the average LendingPoint borrower has a score in the 600s, and the minimum income requirement is only $20,000. It offers discounts on APR for auto payments and spreads the payments out into two monthly installments to make repaying your loan easier. LendingPoint operates in 34 states.
LendingPoint Personal Loan Details
- Minimum Credit Score: 600
- Loan Amounts: $2,000-$25,000
- APR: 15.49%-35.99%
- Term: 24-48 months
- Origination Fee: 0-6%
Short Credit History Lenders
When your poor credit score is a result of a lack of credit history, there is a different class of lenders ready to serve you. These types of loans, often called personal loans for students, since young people are disproportionately represented in this group, offer an easy avenue for cash with the added benefit of helping you build your credit score. Others, including new grads, can also benefit from these short credit history loans, which focus on more than a FICO score when evaluating applicants.
Upstart is a great lender for personal loans if your credit report is thin. This company specifically seeks borrowers with a college education and slim credit profile. It gives greater consideration to education and work experience in assessing a borrower’s eligibility over the typical credit-heavy approach.
Upstart Personal Loan Details
- Minimum Credit Score: 620
- Loan Amounts: $1,000-$50,000
- APR: 8.16-35.99%
- Term: 3 and 5 year terms
- Origination Fee: 0-8%
Co-Signer Eligible Lenders
Sometimes, the best way to lower your interest rates and actually qualify for a personal loan with bad credit is to enlist the help of a co-signer, who is another person with a stronger credit history. Some services allow for a cosigner, and there are additional lenders that specifically cater to this method of receiving funds with bad credit.
As its name implies, Backed is all about getting money by getting “backed up” by someone else or several someones, known as “backers” (financial backing) and “vouchers” (personal trustworthiness vouching). Unlike typical cosigner or guaranteed loans through catchall lenders, Backed is designed as much with the borrower in mind as the cosigner. It has features in place to help protect the cosigner and his or her credit, including an early alert system for late or missed payments and grace periods, should the original borrower go AWOL. The company also uses more than just credit alone to determine rates. In fact, the more personal information you share, the lower your potential APR.
Backed Personal Loan Details
- Minimum Credit Score: 660
- Loan Amounts: $3,000-$25,00
- APR: 2.9%-15.99%
- Term: 12, 24 and 36 month
- Origination Fee: 0.8%-2%
Small Loans for Bad Credit
Borrowers who need small personal loans for bad credit, that is, loans under the $1,000 minimum offered by most of the above-named lenders, are in a bit more of a sticky situation. For these low-value loans, the most appropriate choice — other than private funds from friends and family — is a payday loan, also known as a cash advance loan. As the name implies, these loans are given as a way to access the funds you will receive on your next payday a few days or weeks early. Payday loans come with extremely short terms — generally no more than 45 days, but up to 90 — and high interest rates designed to insure the lender and make money over a short time period.
Taking such high-interest loans, however, is a slippery slope since failure to repay the loan leads to the need for another, increasing your principle quickly and leading to payments and interest rates that spiral out of control. Although these loans seldom require a credit check, they are not subject to the same rules as FDIC-insured personal loans and have no limits on the interest they can accrue. The benefit is that when you need to get a loan today, a payday loan is a solution since it is nearly instant, with funds arriving in your account within a few short hours.
Bank Loans for Bad Credit
On the other side of the coin, more reliable loans for bad credit also exist through traditional bank structures, provided you have the right to access them. The most popular option it to get a secured loan, such as home equity loans and home equity lines of credit. This type of loan, which is attached to the value of your home, provides lenders with a greater degree of security as compared to unsecured personal loans. The idea is that the value of your home provides lenders with some recourse should you fail to repay them the money you owe. Basically, if you default on the loan, the bank can reclaim the value of your loan through the sale of your home.
The final option is using a credit union for a personal loan. Lending practices are a bit more restricted as compared to online lenders, but credit unions are limited to the APR they can charge. Credit unions can offer these lower rates because they are owned by their users (like a co-op) rather than shareholders looking to make a profit. Community or career-based, individuals who work for the government, teach or who are veterans of the armed forces all qualify for specific credit union memberships, which entitle them to these low rates as well as other benefits.