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.

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

Car title loans

Car title loans let you borrow between 25 and 50 percent of your vehicle’s value. But there’s a catch – you must own your car outright and hand over the title until the loan is paid in full. Most car title loans come with short repayment periods between 15 and 30 days, and loan amounts generally start at $100.  

Credit-challenged consumers find these loans attractive because they are easier to obtain than most unsecured products. Furthermore, you typically won’t have to meet stringent eligibility criteria or have a certain credit score to qualify for funding, and loan proceeds could be available in just 24 days or sooner with some lenders. That said, the ease of access comes at a price, typically in the form of high borrowing costs. And if you live in a state that allows car title loans but doesn’t set limits on the amount of interest the lender can charge, you could spend a fortune to access fast cash.

Pros Cons
  • Lax lending guides
  • Rapid approvals and funding timelines
  • Exorbitant interest rates
  • Risk of repossession if you default on the loan

HELOCs or home equity loans

Home equity lines of credit (HELOCs) or home equity loans are another popular secured loan option for credit-challenged borrowers. These loans act as second mortgages and allow you to convert a percentage of the equity you’ve built up in your home to cash. Even better, you can use the proceeds however you see fit. 

The downside is they’re secured by your home, and you risk losing it to foreclosure 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 home equity loan or HELOC on time. 

Before you apply, research several lenders who offer these home equity loan products to determine if you meet their eligibility criteria. It can be challenging to find a suitable lender if your credit score isn’t at least in the mid-600s. However, some lenders may be willing to do business with you if you have an acceptable debt-to-income (DTI) ratio and meet their other guidelines.

Pros Cons
  • Potential to qualify for a higher loan amount
  • More competitive terms than bad credit personal loans
  • Risk of foreclosure
  • Funding may take longer, usually 30 to 45 days

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.