Bad credit loans are designed for consumers with low credit scores who can’t get approved for funding elsewhere. Lenders that offer bad credit loans generally target consumers with poor or fair credit. Because lenders consider them riskier, these borrowers should expect higher interest rates and fees.

There are a handful of bad credit loan options out there. Secured loans tend to have lower interest rates, but payday loans, no-credit-check personal loans and credit card cash advances are quick ways to get financing.

Secured loans

Secured loans require some form of collateral to get approved. Title loans and home equity loans are popular secured loan options, but you risk losing your car or home if you default on the loan payments.

Still, they could work if you haven’t found better options elsewhere and don’t foresee any issues repaying the loan on time.

Before you apply for a secured loan, research several lenders who offer title and home equity loans to determine if you meet their eligibility criteria. You’ll likely have better luck with a title loan if you don’t have good or excellent credit, but you could qualify for a home equity loan with certain lenders.

Pros Cons
  • Lower interest rates than unsecured loans
  • Easier-to-meet requirements than personal loans
  • Risk losing secured property
  • Funding may take longer, usually two or three days

No-credit-check loans

As the name implies, these loan products do not require a credit check to get approved. They are enticing to borrowers with very low credit scores who’ve been turned down for other loan products but come with steep interest rates to offset the risks they pose to the lender. Consequently, you could get a monthly payment that doesn’t quite work for your budget and find yourself in even more financial trouble over time.

Some lenders will stretch out the loan term on these loan products to give you a lower, more appealing monthly payment. However, this just means you’ll pay more in interest over the life of the loan because the lender will have more time to collect interest from you.

Common no-credit-check loans include payday loans, installment loans, auto title loans and cosigner loans.

Pros Cons
  • No impact on credit score
  • Secured and unsecured loan options are available
  • Not legal in every state
  • High interest rates and monthly payments

Payday loans

Payday loans provide a short-term solution to credit-challenged borrowers. These loans typically come with exorbitant interest rates, sometimes well into three figures, and cap at around $500.

Most payday lenders won’t check your credit to qualify you for a loan. You could get the loan proceeds within hours.

Still, payday loans should only be used as a last resort because the cost of borrowing is steep. Plus, you’ll typically have to repay what you borrow by the next payday or face hefty fees if you extend the loan term. This could lead to a vicious cycle that’s challenging to escape.

Pros Cons
  • Same- or next-day turnaround available
  • No credit check required
  • Extremely short repayment period
  • High interest rates — often 200 to 300 percent

Cash advances

A cash advance lets you pull funds from your credit card’s available balance up to the preset limit set by your credit card issuer. The amount you borrow is rolled into the outstanding balance on your credit card. You’ll likely pay a higher interest rate than on regular credit card purchases.

Cash advances are usually made by withdrawing cash from an ATM. You can also request a cash advance from a teller at the credit card issuer’s physical branch location (if applicable).

If possible, only use cash advances in financial emergencies. Although they offer a rapid solution if you’re experiencing financial hardship, they can be costly and keep you in credit card debt for an extended period.

Pros Cons
  • Funds available instantly
  • Less predatory than payday or no-credit-check loans
  • High interest rates, though lower than other bad credit options
  • Must have a credit card with an available balance

Bank agreements

Some banks offer short-term loans for smaller amounts to account holders with positive banking history. The qualification criteria differ by the financial institution, so you want to reach out to your bank or credit union to determine if this is a viable option.

Credit unions also offer short-term loans with interest rates capped at 18 percent. You will need to be a member of the credit union to qualify, but they often have less strict criteria than banks and other lenders.

Pros Cons
  • Lower interest rates than other bad credit options
  • Funds available quickly
  • Much more difficult to qualify for
  • Must have an open checking account

Alternatives to bad credit loans

Although bad credit loans are designed to help consumers who have trouble accessing funding, they can sometimes be costly and predatory. If you’re facing a financial emergency or unexpected expense, here are some viable alternatives:

  • Ask a relative or friend for money. Be sure to draft up a repayment plan that works for both parties to avoid problems later on.
  • Use a credit card. If you have available credit on a credit card, the cost of swiping it is probably much lower than you’ll pay if you take out a bad credit loan. However, you want to repay what you spend sooner than later to avoid spending a fortune in interest.
  • Look for local help. Some communities have religious and nonprofit organizations that offer financial assistance to those experiencing a financial crisis.

Most importantly, work towards building your emergency fund and improving your credit. That way, you may not have to borrow money the next time life happens. Furthermore, you’ll potentially qualify for loan options with better terms and more competitive interest rates if you don’t have enough saved to cover a financial emergency if it arises.

Bottom line

Any loan for bad credit comes with a high interest rate, making it difficult, if not impossible, to repay. However, they offer quick funding when you are facing an emergency expense. Be cautious when comparing lenders. If you can, exhaust the alternative options before turning to a bad credit loan.