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- Loans geared towards those with low credit will have higher interest rates and fees than loans specifically marketed toward borrowers with good credit.
- There are several emergency loans to choose from like personal loans, HELOCs, home equity loans and cash advances. However, not all will approve borrowers with bad credit.
- Stay away from payday or title loans whenever possible. These are much more likely to be predatory and charge sky-high interest rates that can get you stuck in a debt cycle.
If life happens and you need to borrow money, you have options. But if you have less-than-perfect credit, you’ll generally have to look beyond traditional personal loans from banks and credit unions to get the help you need.
An emergency loan can help you get back on track and possibly rebuild your credit. Plus, some options are specially designed to help borrowers with low credit find relief.
Here are four options to consider if you need funding quickly but don’t have the credit necessary for approval with a traditional loan.
1. Payday-alternative loan
Offered by select federal credit unions, payday-alternative loans are available in small amounts and come with short repayment periods. You can borrow up to $2,000, typically payable over one to 12 months.
The interest rate you receive depends on your credit score, those with bad credit tend to get the highest interest rate but it’s capped at 28 percent. To apply, you have to be a member of a credit union offering this loan product.
- More competitive interest rates than payday loans.
- Application fee cannot exceed $20.
- Credit union membership required.
- Small loan amounts.
Who it’s good for
Credit union members with lower credit scores who need a small loan and can’t get approved elsewhere for a personal loan with competitive terms.
2. Credit card cash advance
Some credit cards have a cash advance feature that lets you pull funds from your credit line. You can visit an ATM or a bank branch to withdraw the funds you need up to the cash advance limit or the available credit on your card, depending on the card issuer’s guidelines.
Credit card issuers charge a transaction fee, usually between 3 and 5 percent, to use this feature. Plus, you’ll immediately accrue interest on the funds you borrow since there’s no grace period.
- Immediate access to cash.
- No application or credit check required.
- Cash advance fee.
- Higher APR and no grace period.
Who it’s good for
Cardholders with available credit that need to access a small amount of cash and can afford to pay it back quickly.
3. Payday loan
Payday loans are short-term unsecured loans for small amounts. Most are limited to $500 and due by your next payday, or within two weeks. You likely won’t need to undergo a credit check to get approved, making payday loans easily accessible to borrowers with bad credit.
That said, lenders charge hefty interest rates to take out a payday loan. Furthermore, payment is often required by ACH withdrawal, and not having the funds available when the loan becomes payable often results in fees from your financial institution. And if you live in a state that allows rollovers, it comes at a price that can keep you trapped in a vicious debt cycle.
Some states have completely banned payday loans. Others impose lending restrictions that outline limits on interest rates and fees.
- No credit check.
- Funding as soon as a few hours.
- Triple-digit interest rates on some loans.
- Steep fees for rollovers.
- Usually doesn’t help build credit.
Who it’s good for
Consumers who’ve exhausted all other options and are confident they can repay the loan in full by the due date.
4. Title loan
Title loans are secured and require you to hand over the title to your vehicle as collateral in exchange for cash. Most lenders let you borrow between 25 percent and 50 percent of your car’s value.
Like payday loans, title loans should also be used as a last resort for several reasons. You risk losing your vehicle if you cannot keep up with the loan payments. These loans also come with high interest rates, and you could get a short repayment period that places a strain on your wallet if the monthly payment is steep.
- Funds available as soon as the same day.
- Often accessible without a credit check.
- Risk of repossession.
- High borrowing costs.
- Doesn’t report to the credit bureaus.
Who it’s good for
Individuals who have no other alternatives to access the cash they urgently need.
Non-loan alternatives for bad credit
If you’d prefer not to use credit to cover a financial emergency, these non-loan alternatives could work:
- Get help from a charity or local nonprofit: Call 211 to learn more about financial resources that may be available in your local area or through your state.
- Request a paycheck advance: If you’ve been at your job for a while, ask your employer for an advance on your next paycheck.
- Ask a friend or relative for a loan: They may be willing to give you an interest-free loan, but be sure to put the agreement in writing.
- Make payment arrangements: If you need fast cash to cover monthly debt obligations, contact the lender or creditor and ask for an extension.
- Borrow from your 401(k): Some 401(k) plans permit loans of up to $50,000 or the vested balance — whichever is lower — and the interest you pay goes back into your account. Keep in mind that this route could impact your retirement savings as there is a large tax deduction when drawing from your 401(k).
How to avoid a bad credit loan scam
Financial emergencies can be stressful and overwhelming. Unfortunately, it’s common for scammers to prey on innocent consumers by offering illegitimate or predatory loan products that lead to even more financial distress. But you can avoid falling victim to these deceptive tactics by taking the time to carefully consider your options.
It’s equally important to thoroughly research the lenders on your list. Conduct an online search to learn more about their reputation, and check the Better Business Bureau’s website to view their status before applying.