A bad credit loan is a personal loan that caters to people who have a less-than-stellar credit score or a limited credit history — especially those who have a FICO score under 580 or a VantageScore under 600.

Bad credit loans typically have high interest rates because they may pose a risk for the lender, so it’s important to shop around to find the most competitive rate offer. There are a few options available, so compare offers and get prequalified before settling on a lender.

1. Determine what loan terms best fit your needs

Personal loans typically come with repayment terms from two to five years, though some lenders offer terms up to seven years or longer. It can be tempting to opt for a loan with a long term to get a lower monthly payment, especially when faced with high interest rates. But stick with the shortest term you can reasonably afford to cut down on the total interest you pay.

For example, consider a bad credit loan of $5,000 with an interest rate of 29 percent. A longer term means a lower monthly payment, but the interest you pay could be thousands more.

Loan term Monthly payment Total interest
2 years $277 $1,647.92
3 years $210 $2,543.03
4 years $177 $3,502.41
5 years $159 $4,522.56

Use a loan calculator to calculate the difference in monthly payments and interest to get a better idea of what fits in your budget.

2. Prequalify with three or more lenders

Once you know your desired loan amount, compare rates and terms from at least three lenders that allow you to prequalify online to preview rates and terms you could receive after submitting a formal application. Prequalifying won’t hurt your credit score since it only requires a soft credit check.

You’ll likely be asked to provide your contact information, Social Security number, employer’s name and phone number, as well as information about your income to complete the prequalification process. Keep in mind that prequalifying doesn’t mean guaranteed approval.

3. Look at customer experience and reviews

The lender should offer customer support by phone, online or both at times that work for your busy schedule. It is also vital that the application experience is seamless and the lender allows you to manage your loan online.

You should also check reviews to get a feel for the level of service each lender offers. It’s not abnormal to see a few negative reviews here and there, but keep an eye out for trends in complaints and how the lender responds to them.

4. Identify useful perks

Beyond providing you with a seamless application experience and rapid funding, some bad credit lenders offer other perks to help improve your overall financial health.

For example, you may receive free access to your credit score directly from the online dashboard. There could be an assortment of financial tools, including calculators and educational articles, to provide the information needed to make sound financial decisions moving forward.

Bottom line

The best bad credit loan for you depends on your unique financial situation. Before you apply for a bad credit loan, compare rates, terms and fees from at least three lenders to find the option that best matches your needs and budget.