Hanneh Bareham specializes in everything related to personal and student loans and helping you finance your next endeavor. She aims to help others reach their collegiate and financial goals through making loans easier to understand.
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Aylea WilkinsLoans Editor, Former Insurance Editor
Aylea Wilkins is an editor specializing in student loans. She has previously worked for Bankrate editing content about personal and home equity loans and auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information.
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Bankrate assesses the top personal loans for bad credit, considering interest rates, terms and features offered by each lender. We also outline different types of bad credit loans, how to spot loan scams and other important information about bad credit loans.
Bad credit loans are personal loans from lenders that work with bad credit borrowers. These can be secured (backed by collateral) or unsecured loans. Interest rates, fees and terms for these types of loans vary by lender. Various banks, credit unions and online lenders offer loans to those with poor credit, but the threshold for what’s considered a “creditworthy borrower” varies by institution. Some lenders have stricter requirements than others, which makes it important to shop around for the best option.
While your credit score will keep you from getting a great APR (annual percentage rate), you can still find interest rates that are much lower than with options like credit cards or payday loans. Our recommendations for the best bad credit personal loans have flexible eligibility requirements and relatively low rates for the credit band.
1
Your finances.
Bad credit loans often come with higher interest rates which can lead to more debt down the road. Look at your situation holistically. Is taking out a personal loan necessary right now, or can you wait a few months to improve your credit score?
2
The situation.
Personal loans are good financing options for some situations, but not all. If you're planning on using the loan for anything other than to pay for an unexpected expense or to consolidate high-interest debt, it may be wise to build up your credit first.
3
Your estimated monthly payment.
Most lenders offer a prequalification tool that gives you your potential rates and payment before applying without impacting your credit. Prequalify for as many lenders as possible to see if your predicted monthly payment will fit comfortably in your budget.
4
Predatory alternatives.
Payday loans are advertised as a way to get cash quickly, but they come at a price. If you don't get approved for a personal loan, you'll want to steer clear of payday loans as they come with extraordinarily high interest rates. In general, be wary of any lender that doesn't ask for your credit information or requires you to pay back the entire loan in one payment.
There's no single best loan company for everyone. The best bad credit loan company for you depends on a few factors:
1
Eligibility requirements.
Many lenders list eligibility requirements on their websites, including minimum credit scores, minimum income levels and maximum debt-to-income ratio. Find the lender that best matches your financial situation or allows for a co-signer.
2
Interest rates and fees.
Lenders use different criteria to calculate your interest rate. Get quotes from a few lenders and compare interest rates, origination fees and prepayment penalties to determine which will have the cheapest loan interest for you.
3
Repayment terms.
Personal loan lenders may offer repayment terms anywhere from one to 12 years. A shorter repayment period means you'll be out of debt sooner and will pay less overall interest. A longer repayment period, on the other hand, will reduce your monthly bill.
4
Loan amounts.
Minimum and maximum borrowing amounts vary by lender. Make sure the lender you choose offers the loan amount you’re looking for before applying.
5
Type of lender.
You can find personal loans from banks, credit unions and online lenders. Online lenders often have the lowest rates, but you won't have the in-person service of a bank. Additionally, a local credit union that you already do business with may be more willing to extend you a bad credit loan based on your existing relationship. Additionally, a local credit union you already do business with may be more willing to extend you a bad credit loan based on your existing relationship.
6
Unique features.
Lenders sometimes offer perks like introductory APRs and online financial tools and apps, especially if you're a member of the institution. Along with the rates, check each lender's benefits when factoring in your top picks.
7
Customer experience.
Some lenders offer online chat features and seven days a week customer phone support. Look into a lender’s customer service options before applying, especially if you prefer in-person service.
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Bankrate’s scores for personal loan lenders evaluate 11 data points related to loan costs and terms, as well as customer experience.
The annual percentage rate (APR) includes your interest rate, plus any loan fees. It reflects the total cost of borrowing.
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Personal loans up to $50,000 with low fixed rates that will never change
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Use your loan through Upgrade to pay on high interest credit cards, make a large purchase, finish that home improvement project, or almost any life event!
Personal loans made through Upgrade feature Annual Percentage Rates (APRs) of 8.49%-35.97%. All personal loans have a 1.85% to 8.99% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. Loans feature repayment terms of 24 to 84 months. For example, if you receive a $10,000 loan with a 36-month term and a 17.59% APR (which includes a 13.94% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $341.48. Over the life of the loan, your payments would total $12,293.46. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by Upgrade's bank partners. Information on Upgrade's bank partners can be found at https://www.upgrade.com/bank-partners/.
Get a personal loan up to $50,000 with a fixed APR from 7.99% to 35.99%
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Use it for almost anything: consolidate debt or other unexpected expenses
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*Trustpilot TrustScore as of June 2020. Best Egg personal loans, including the Best Egg Secured Loan, are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender or Blue Ridge Bank, a Nationally Chartered Bank, Member FDIC, Equal Housing Lender. “Best Egg” is a trademark of Marlette Holdings, Inc., a Delaware corporation. All uses of “Best Egg” refer to “the Best Egg personal loan”, “the Best Egg Secured Loan”, and/or “Best Egg on behalf of Cross River Bank or Blue Ridge Bank, as originator of the Best Egg personal loan,” as applicable.
The term, amount, and APR of any loan we offer to you will depend on your credit sc¬ore, income, debt payment obligations, loan amount, credit history and other factors. Your loan agreement will contain specific terms and conditions. About half of our customers get their money the next day. After successful verification, your money can be deposited in your bank account within 1-3 business days. The timing of available funds upon loan approval may vary depending upon your bank’s policies. Loan amounts range from $2,000– $50,000. Residents of Massachusetts have a minimum loan amount of $6,500 ; New Mexico and Ohio, $5,000; and Georgia, $3,000. For a second Best Egg loan, your total existing Best Egg loan balances cannot exceed $100,000. Annual Percentage Rates (APRs) range from 8.99%–35.99%. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0.99%–8.99% of your loan amount, which will be deducted from any loan proceeds you receive. The origination fee on a loan term 4-years or longer will be at least 4.99%. Your loan term will impact your APR, which may be higher than our lowest advertised rate. You need a minimum 700 FICO® score and a minimum individual annual income of $100,000 to qualify for our lowest APR. For example: a 5‐year $10,000 loan with 9.99% APR has 60 scheduled monthly payments of $201.81, and a 3‐year $5,000 loan with 7.99% APR has 36 scheduled monthly payments of $155.12. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents. Best Egg products are not available if you live in Iowa, Vermont, West Virginia, the District of Columbia, or U.S. Territories.
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You can consolidate all your credit card payments down to one monthly, affordable, fixed-rate payment between 5.99% and 24.99% APR
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NetCredit is an industry-leading online financial services provider. Depending on your state, your loan will be originated by NetCredit or a lending partner bank. You may be asked to provide additional documents to verify your income, identity and bank account. In some states, Annual Percentage Rate may be inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments may incur additional fees and may increase the cost of your fixed rate loan. Please refer to NetCredit's Terms of Use, Rates & Terms and Borrower Agreement for all terms, conditions and requirements.
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The Bankrate guide to choosing the best personal loan for bad credit
To help you choose the right loan for you, our editorial team has collected the most important information you need to shop for lenders and make your decision. Bankrate gathered data on loans for individuals with bad credit by comparing lenders and their rates as well as information on how someone with poor credit can get the best possible loan.
The lenders listed here are selected based on factors such as credit requirements, APRs, loan amounts and fees. Bankrate evaluated lenders and options for individuals with bad credit to help people find the best lender and rates for their situation.
What is a bad credit personal loan?
When you apply for a loan, lenders will look at your credit score and credit history to determine how much of a risk it is to them to lend you money. Bad — or low — credit is a score that falls between 300 and 579 and is caused by factors like thin credit history, multiple late payments and maxed-out credit cards.
If you have bad credit, it can be difficult to get approved for a loan. You'll likely need to turn to lenders that offer loans for bad credit. These loans are either secured (backed by collateral, like a home or car) or unsecured and often come with higher interest rates than other personal loans.
Before signing on the dotted line, be completely sure you need a bad credit loan, as the higher rates and potentially unfavorable terms could put you in more debt down the road.
How to get a loan with bad credit
If you decide that a bad credit loan is your best financing option, the approval process will depend on the lender you work with. However, you can potentially increase your chances of getting approved as you compare bad credit loan lenders.
After calculating how much you need to borrow, you'll need to start comparing your options. Many lenders offer a prequalification tool that allows you to see your eligibility odds and the predicted rate without impacting your credit score. Prequalify for as many lenders as possible to make sure you get the most competitive offer for your credit situation.
Overview: Upstart developed a reputation for offering fast and fair unsecured personal loans. APRs for Upstart loans vary by state and range from 6.50 percent to 35.99 percent. Loan amounts range from $1,000 to $50,000, and you can choose a repayment term of either three or five years.
Why Upstart is the best for limited credit history: While many loan applications are based primarily on a borrower’s credit score and years of credit, Upstart applications also factor in an individual’s education, job history and area of study.
Pros
No minimum credit score requirement
Quick next day funding
Offers direct payment to creditors
Cons
Origination fee of up to 8 percent of the approved loan amount
Potentially high APR with the maximum set at 35.99 percent
Loans only available for three- or five-year terms
Who it's for: Borrowers with thin credit history.
Lender perks:
Flexible eligibility criteria
Flexible repayment date
Fast funding
Fees:
5% up to $15 late fee
10% origination fee
$15 returned check fee
$10 one-time paper copies fee
Time to receive funds: As soon as one business day
Overview: OneMain Financial offers both unsecured loans and secured loans, which require providing collateral, such as a motor vehicle. Loan amounts range from $1,500 to $20,000. APRs can run anywhere from 18.00 percent to 35.99 percent, and term lengths are 24, 36, 48 or 60 months.
Why OneMain Financial is the best for a secured loan: Many lenders only offer unsecured loans. Borrowers who can’t get approved elsewhere may have a better chance of getting a secured loan with OneMain Financial.
Pros
Secured options available
Over 1,500 branches offices for those who prefer in-person service
A variety of loan term length options ranging from 2 to 5 years
Cons
Origination fees vary by state
High minimum APR of 18.00 percent
Business purposes are not allowed
Who it's for: Borrowers who have assets.
Lender perks:
Offers Secured and unsecured loans
Physical branches in 44 states
Cancellation policy
Fees:
Vary depending on state
Up to 10% origination fee
Up to $500 flat fee
Up to $30 or 15% late fee
Up to $50 insufficient funds fee
Time to receive funds: One to two business days
Requirements:
U.S. citizen, permanent resident or eligible non-resident
Overview: TD Bank's TD Fit unsecured personal loan offers borrowers anywhere from $2,000 to $50,000 and comes with few fees. Its loans are also funded in as little as one business day.
Why TD Bank is the best for low rate caps: While TD Bank doesn't offer the absolute lowest rates, the cap on its personal loan rates is relatively low at 18.99 percent APR. This could make it particularly appealing for borrowers with poor credit who might otherwise be subject to rates above 30 percent.
Pros
Soft credit check in prequalification
Flexible loan amount range
Option to change your payment date
Cons
Only available in certain states
Cannot be used for business or education expenses
No autopay discount
Who it's for: Borrowers who qualify for high APRs.
Lender perks:
Quick funding
24/7 customer service
Few fees
Fees: 5% up to $10 late fee
Time to receive funds: As soon as one business day
Overview: Avant offers unsecured loans of between $2,000 and $35,000 with APRs from 9.95 percent to 35.95 percent.
Why Avant is best for a range of repayment options: Avant’s loans offer repayment terms of 12 to 60 months, and with no prepayment penalty, borrowers can save money on interest by paying their loans off early.
Pros
Income of other household members can help qualify
No prepayment penalty
Low minimum credit score requirements
Cons
High upfront administration fee
High minimum APR of 9.95 percent
No co-signers or co-borrowers
Who it's for: Those who want to pay off their loan early.
Lender perks:
Payment assistance options
Offers unsecured loans
10-day grace period
Fees:
4.75% administration fee
Late fee
Dishonored payment fee
Time to receive funds: As soon as the next business day
Overview: LendingPoint operates in 48 states and Washington, D.C., and is known to offer unsecured loans for those with credit scores as low as 600. Loan amounts range from $2,000 to $36,500, and APRs start at 7.99 percent and go as high as 35.99 percent. The repayment terms offered by LendingPoint vary from 24 to 60 months.
Why LendingPoint is the best for small loans: Some lenders with tighter credit requirements have a $5,000 minimum for personal loans, but LendingPoint lets bad credit borrowers take out as little as $2,000.
Pros
Approval based on a variety of factors
Available in most states
Low minimum borrowing amount
Cons
High origination fee for some
Loans limited to $36,500
High minimum APR of 7.99 percent
Who it's for: Those looking to borrow a small amount.
Lender perks:
Low minimum credit score
Flexible eligibility looks beyond credit score
Fees:
Up to 8% origination fee
Late fee
Time to receive funds: As soon as one day following approval
Overview: Upgrade offers unsecured personal loans that can be used for debt consolidation, credit card refinancing, home improvements or major purchases. APRs available from Upgrade start at 8.49 percent and go as high as 35.97 percent. Loan amounts range from $1,000 to $50,000, and terms are 24 to 84 months.
Why Upgrade is the best for fast funding: Loan funds can be available within just one business day of going through the provider’s verification process.
Pros
Allows joint applications
Upgrade sends debt consolidation loan funds directly to creditors
Overview: If your credit score makes it difficult to get approved for a loan, LendingClub allows you to increase your chances of approval by having a co-borrower. Not every lender offers this option, and it can be a helpful way to qualify for a loan that you wouldn't have gotten otherwise.
Why LendingClub is the best for an online experience: LendingClub has a robust website that features an easy application process and an extensive loans resource center.
Pros
Co-borrowers allowed
15 day grace period for late payments
Low minimum borrowing amount
Cons
Origination and late fees
Limited lerm term options
No autopay discount
Who it's for: Those wanting a smaller loan.
Lender perks:
Autopay discount
Option to change payment date
Prequalification available
Fees:
3%-6% origination fee
Late fee
Time to receive funds: As soon as two business days
Requirements:
U.S. citizen or have long-term visa
Verifiable bank account
At least 18 years old
Not live in Iowa or U.S. territories
What to know about your credit score and securing a loan
Lender's often base rates off of creditworthiness — a borrower's overall credit health. Borrowers with excellent credit are eligible for the most competitive rates and terms, while those with a thin credit history or a less-than-ideal score are more likely to be offered higher interest rates.
Here's a rundown of the estimated APR you could receive based on your credit score.
Estimated APR by FICO score range
CATEGORY
CREDIT SCORE
PERCENTAGE OF PEOPLE IN THIS CATEGORY
ESTIMATED APR
Excellent
800-850
21%
10.3%-12.5%
Very good
740-799
25%
10.3%-12.5%
Good
670-739
21%
13.5%-15.5%
Fair
580-669
17%
17.8%-19.9%
Very poor
300-579
16%
28.5%-32%
What is considered a bad credit score?
There are a few credit-scoring models that you can use to check your credit score, but the FICO credit scoring system is one of the most popular. FICO scores range from 300 to 850, with the scores on the lower end considered poor or fair.
According to FICO, a bad credit score is within the following ranges:
A poor or fair credit score can impact your ability to get approved for a loan and can even affect your ability to rent an apartment or purchase a home. If you get approved for a loan with bad credit, you'll likely be charged the highest interest rates and fees. However, there are long-term habits that you can develop to improve your credit score.
If you're in need of a personal loan in the near future and don't have the ability to build your credit before applying, making the monthly payments in full and on time is a surefire way to build your score while paying off your balance.
What makes up a bad credit score?
FICO calculates your credit score using five pieces of information:
If your finances fall short in one or more of these areas, your score will drop. For instance, having a history of late payments will have a huge impact on your score, since payment history contributes the most to your score. Things like bankruptcies, foreclosures and high amounts of debt relative to your income could also result in a bad credit score.
Where can I get a personal loan with bad credit?
When searching for a personal loan with low or bad credit, it is important to consider all of your options before committing to an online lender.
While bad credit can lead to limitations in the borrowing process, there are lenders, banks and credit unions who gear their products specifically toward borrowers in this situation. Plus, it's not uncommon for financial institutions to provide helpful financial resources and member benefits should you borrow from them.
Online personal loans for bad credit
Applying to online lenders can be a good option for borrowers with bad credit, especially if you submit an application through an online lending network. These online networks often allow you to submit a single initial application and then compare offers from responding lenders. Online lending networks make it easier to find the lenders that offer the most competitive rates, which makes it easier to sift through the details to find the best fit for you.
Direct lenders also can offer online personal loans. To make the process easier, do your research beforehand to see if the lender you'd like to work with offers loans to borrowers within your credit range.
In-person lenders for bad credit personal loans
If you prefer to get started in person, applying directly with individual lenders, banks and credit unions could be a good option. Before turning to new lenders, see if the institution you bank with offers personal loans for your credit range — member discounts or exclusive ebenefits may be available. Compare the rates you're offered at these institutions with new lenders as well.
Types of bad credit loans and their uses
There are two main options for getting a personal loan if you have bad credit: secured and unsecured, but there are many other varieties:
Secured loans are those that require collateral, like a home or car. Generally, these loans offer more favorable rates and terms and higher loan limits because you have a greater incentive to pay your loan back. If you have bad credit, it may be easier to get a secured loan than an unsecured one.
Who it's best for: People who feel confident that they will pay back the loan without any problems and will have trouble otherwise qualifying for a loan with a favorable APR.
What to watch out for: If you default on the loan, you risk losing your home, car or other collateral. The most common types of secured loans are mortgages, home equity loans and auto loans, although some lenders offer secured personal loans.
When to get started: When you have considered all of your loan options and are having trouble finding an option that you can afford, you may want to consider getting a secured loan for a better rate.
How to get started: Consider what items you have that could qualify for collateral and look for lenders that will accept collateral of that type.
Takeaway: Secured personal loans can help someone with bad credit get a loan with a better APR, but it does put whatever is used as collateral at some risk.
Unsecured loans don’t require any collateral, and the rate you receive is based on your creditworthiness — meaning they may be harder to qualify for if you have below-average credit.
Who it's best for: Generally, this type of personal loan is the best option for most people.
What to watch out for: Because these loans are not secured by an asset, they typically come with a higher interest rate and lower loan limits. APRs may be far above what you're able to pay, and you may not qualify at all.
When to get started: When you need a loan for a bigger purchase or debt consolidation.
How to get started: Shop around for loans, getting prequalified if possible, to find the best overall loan for you.
Takeaway: Unsecured loans are the most common type of personal loans, but they can be hard to qualify for or get favorable APRs with if you have bad credit.
Payday loans are short-term loans, typically for $500 or less. They charge incredibly high fees in exchange for fast cash, and repayment is typically due by your next paycheck.
Who it's best for: It's best to avoid these loans at all cost, unless there are no other available options to finance an emergency expense.
What to watch out for: The overall cost of borrowing is high — sometimes up to 400 percent in interest — so it's important to weigh your other options first. Payday lenders are often predatory, so thoroughly research companies before signing on the dotted line.
When to get started: Only after you have considered all other options.
How to get started: Research loan companies to ensure you don't use a predatory lender, and have a plan to make sure you can pay back the loan by the due date — or earlier, preferably — so that you don't spend years paying down the high-interest debt.
Takeaway: Payday loans have the potential to put you into a cycle of debt due to predatory behavior and sky-high interest rates. Although they may seem convenient, exhaust all other options before turning to such a loan.
A cash advance is similar to a short-term loan and is offered by your credit card issuer. The sum you receive is disbursed in cash and is borrowed from the available balance on your credit card.
Who it's best for: Cash advances are one of the fastest ways to get money, so they may be worth looking into if you have urgent needs.
What to watch out for: If you have an unsecured credit card, your cash advance interest rate will likely be higher than your card’s standard purchase APR and higher than interest rates on personal loans.
When to get started: If you need money quickly and don't have time to wait a few days for money.
How to get started: Contact your credit card company or look up their policies on how to get a cash advance without talking to a representative.
Depending on your bank’s policy, it may approve you for a short-term loan or minimal overdraft agreement. This is, of course, dependent on your banking history and ability to keep your account open. For more information, contact your bank and ask about your options.
Who it's best for: People who have a good relationship with their bank and need to access a small amount of cash as a short-term solution.
What to watch out for: Because bank agreements are not official policies, they are not reliable ways to borrow money.
When to get started: When you have looked at your loan options and find that a bank agreement may be the right decision for you.
How to get started: Contact your bank.
Takeaway: If you'd like to set up a bank agreement, the best way to find out your options is to contact your bank directly and ask about its policies.
Home equity loans disburse a lump sum of money upfront, which you pay back in fixed monthly installments. These loans use your home as collateral.
Who it's best for: Someone who needs a lot of money upfront or who wants to use their home equity to make home improvements that increase the home's value or otherwise improve their financial position.
What to watch out for: Because your home is collateral for the loan, if you fail to make the monthly payments on time, you risk losing your home.
When to get started: After you have shopped around for personal loans and determined collateral will be the best option for you.
Takeaway: Home equity loans can be ideal for reasons that require a large sum of money upfront, like larger home improvement projects or debt consolidation.
HELOCs are similar to home equity loans in that they are based on your home equity and secured by your home itself. HELOCs, however, are functionally similar to credit cards in that they allow you to borrow only as much as you need, when you need it, then repay funds with a variable interest rate.
Who it's best for: Homeowners who need to borrow some cash some at a time rather than all at once.
What to watch out for: As with a home equity loan, you use your home as collateral, which puts you at risk if you don't make the payments on time.
When to get started: When you know you'll need small amounts of cash over a period of time and can pay back what you borrow.
How to get started: Find lenders that offer HELOCs and search for the ones that work with people with bad credit.
Takeaway: A HELOC is a valid loan option for people with bad credit because you'll secure the loan with your home. It's also a good option if you don't need all of your funds upfront.
While not a type of personal loan, a student loan may meet your needs if you're trying to pay for education costs like tuition, textbooks and room and board. Many personal loan lenders do not allow you to use funds for education, so you'll have to start your search with dedicated student loan lenders for bad credit.
Who it's best for: Students who need money for their education. Student loans are sometimes the only way to get funding if you need to pay for your college tuition or related expenses.
What to watch out for: Student loans are not offered by many personal loan lenders, and if you have bad credit, you'll almost certainly need a co-signer to qualify.
When to get started: When you become a college student and other funding options such as scholarships or family aid aren't enough to cover your costs.
How to get started: Look for student loan lenders that offer loans for people with bad credit or offer co-signer opportunities.
Takeaway: Unlike the other options on this list, student loans can only be used for one purpose, but almost all student loan lenders accept co-signers if you have poor credit.
Pros and cons of bad credit loans
While every loan comes with advantages and disadvantages, borrowers with low credit will need to carefully consider the potential drawbacks to avoid getting into high-interest debt down the road.
Pros
Flexible eligibility: Loans for borrowers with credit that's average and below are more likely to base approval on factors other than just credit score. For example, Upstart also factors in education and job history when evaluating an application.
Potential credit boost: A positive repayment history is one of the fastest ways to grow a credit score.
Lower rates than credit cards: While loans of this nature carry higher rates when compared to other personal loans, they generally have lower interest rates than most credit cards.
Cons
Possible fees: Before applying, read the fine print in the terms and conditions to look for any hidden fees. Due to the lower credit range of the applicants, many bad credit loans charge high fees that can detract from the overall value of the loan.
Collateral requirements: Some lenders only offer secured loans for borrowers who have low credit, which poses a risk to the borrower should they become unable to make the monthly payments.
Increased predatory potential: Many predatory lenders will advertise their products similarly to bad credit loans. However, these often come with rates that are near impossible to manage and leave the borrower in years of debt.
Alternatives to bad credit loans
Bad credit loans carry a reputation for high interest rates — which for some could lead to long-term financial damage. Before signing off on a loan you're not positive you can manage, consider the alternatives.
If time is on your side, it may be worth holding off on getting a loan and instead work to improve your credit score. Credit serves as your financial DNA, so the better it is, the better your rates will be. Some ways to improve your credit include getting a secured credit card, paying credit balance, disputing credit errors and requesting higher credit limits.
Many lenders are shifting from the traditional approach to loans and not just relying on credit scores. These lenders use a borrower's education or employment history to determine riskiness for a loan. Look out for online lenders and credit unions that are offering this service, especially if you have little or no existing credit.
If you are a home or property owner and in need of cash, consider tapping into that equity. A home equity loan or home equity loan of credit (HELOC) may give you access to any money needed.
How to spot bad credit loan scams
While shopping for a personal loan, avoid potential scams by being aware of the following red flags.
Guarantees without approval: Reputable lenders generally want to see your credit report, income and other information before extending an offer. If you come across a lender that isn’t interested in your payment history, you might be getting lured into a bad situation.
No registration in your state: The Federal Trade Commission requires that lenders be registered in the state where they do business. Research whether the business is licensed in your state.
Poor advertising methods: Phone calls and door-to-door solicitation are not considered legitimate advertising practices for trustworthy lenders. Similarly, loan offers that pressure you into taking action immediately are designed to get you to accept without due consideration.
Prepayment: While application, origination or appraisal fees are common loan charges, these charges are often deducted from the total amount of your loan. If a lender requires you to provide cash or a prepaid debit card upfront, it's not legitimate.
Unsecured website: A lender's site should be secure, meaning the website address should begin with "https" and feature a padlock symbol on any page where you're asked for personal information.
No physical address: A reputable lender should have a physical address listed on its website.
Frequently asked questions
How much money you can borrow will depend on the lenders you choose, what kind of bad credit loan you choose and if the lender considers other factors beyond credit. However, loans typically range from $2,000 to $35,000.
The best way to get a more favorable APR or be approved by more lenders is to raise your credit score. You can do that by showing you are responsible with credit like by making payments on time and reducing your debt-to-income ratio and credit utilization.
It is possible to get a no-credit-check loan, however many of these options can be predatory or how extremely high interest rates and fees. You will likely find much better loan terms that don't put you at risk of debt you can't get out of if you search for lenders that accept borrowers with bad credit instead.
Like any loan, you will spend more money over the lifetime of the loan than you borrow. With bad credit loans, you will likely have higher interest rates than you would with higher credit. You may find it harder to pay back the loan plus interest or to get out of debt. However, if you manage your loan and other finances well, a bad credit loan may only be as risky as any other type of credit you use.
The easiest types of loans to get with bad credit are personal installment loans and payday loans. However, be wary of payday loans as they typically come with steep interest rates.
There are many lenders that work with borrowers with bad credit, many of which are outlined in the list above. These companies typically consider factors other than your credit score, including income, payment history and employment history.
While most lenders require a minimum credit score of 600 or higher, there are lenders that work with borrowers who have a 550 credit score. One notable example is Avant. However, you are unlikely to qualify for a lender's lowest rates.
The interest rate you get will depend on the lender, your credit history and financial situation. However, since most bad credit loans have rates that fall on the higher side, you can expect interest rates that fall between 18 percent and 30 percent.
Methodology
To select the top bad credit personal loan lenders, Bankrate considers 15 primary factors, with extra weight given to flexibility of eligibility criteria. Since bad credit personal loans can be tied up with extremely high fees, we also give more weight to the APR ranges offered and fees.
Overall, Bankrate reviewed 33 lenders and pulled the top eight. Each of the eight have a Bankrate rating that is broken down into three buckets: availability, affordability and customer experience. The categories are scored based on several data points adding up to a potential total of 300 points.
Availability: Eligibility requirements, online application availability and turnaround time are considered under this category.
Affordability: This encapsulates the fees, penalties and minimum and maximum interest rates charged by the lender.
Customer experience: This covers customer service hours, online access and mobile apps.
Consider both the Bankrate ratings and the best-for category for each lender when evaluating which might best fit your needs.
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