Key takeaways

  • Some lenders approve borrowers with credit scores as low as 580 or lower.
  • Loans for bad credit usually come with high annual percentage rates (APRs) and fees.
  • Beware of lenders that guarantee approval or require upfront fees — these are signs of a scam.

A bad credit loan is a personal loan that caters to borrowers with bad credit scores — often defined as a FICO score below 580. If approved, you can use the funds for various purposes, such as covering financial emergencies, consolidating debt or paying for medical bills.

These loans work the same way as other personal loans — they generally come with fixed rates and are payable in monthly installments. However, the key difference is that they often have higher rates and fees. As a result, it’s best to consider the potential costs of a loan for bad credit to assess whether it’s the best option for you.

Where can you get a bad credit loan?

You can get a bad credit personal loan from a variety of lenders, including banks and credit unions. However, you’ll find most lenders that cater to bad credit operate solely online.

  • Online lenders. Many online lenders offer bad credit loans. For example, Avant offers loans to consumers with credit scores as low as 580.
  • Credit unions. Since credit unions are member-owned institutions, they may be willing to offer you a loan even if you have less-than-stellar credit.
  • Banks. While banks have more stringent credit requirements, you may still be able to get a personal loan — especially if you already have an account.

Who may want to consider a bad credit loan?

A bad credit loan may be worth considering if you need fast cash and don’t qualify for other loans. If you have time, it’s likely better to build up your credit or save — but both take time.

If you need money sooner rather than later, there are still options. Secured loans are a good fit if you are confident you can make payments on time — provided you have an asset you can use as collateral.

Unsecured loans have higher interest rates, but they are more common for borrowers with bad credit. This will be the option you go with under most circumstances.

How much does a bad credit personal loan cost?

It depends on the lender and your credit rating. You can expect an APR of up to 36 percent when you take out a bad credit loan.

For instance, here’s how much a $5,000 personal loan for bad credit with a three-year term could cost based on different APRs.

APR Monthly payment Total interest
20% $186 $1,689.45
26% $201 $2,252.31
35.99% $229 $3,243.66

A lower credit score means you’ll typically get a higher interest rate since the risk of default is higher. But if you opt for a secured loan, the lender could give you a slight break on the interest because there is less risk on their end.

How do you avoid predatory bad credit loans?

Not all bad credit loans are the same. When considering your options, there are a few factors that determine if a lender is a safe choice.

  • Is the lender reputable? The lender should be registered to do business in your state, have a physical address and a secure website.
  • Does the lender charge prepayment penalties? You may want to steer clear of bad credit loans with prepayment penalties. Otherwise, you’ll be assessed a fee if you get back on track sooner than later and pay the loan off early.
  • Is the interest rate excessive? Bad credit loans come with steep interest rates. Research the market and find a lender that offers competitive rates. If yours doesn’t, consider going with a different option.
  • What are the repayment terms? Steer clear of bad credit loans with extended payment periods. The lender may stretch the loan out to make your monthly payment more affordable, but you’ll also pay a fortune in interest.

Also avoid lenders that guarantee approval before you apply or require an upfront payment to secure a loan. Both are signs of a scam.

Bottom line

Taking out a bad credit personal loan can help you cover large expenses.  However, consider whether you can afford the higher costs — and always explore cheaper alternatives first. If you determine that it’s the best financing option for you, compare rates, terms and fees across as many lenders as possible to find the best deal.