Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.

Key takeaways

  • You can find loans for borrowers with bad credit through community banks, credit unions and online lenders.
  • Predatory or misleading loans are often disguised as bad credit loans. If the rate is above 35.99 percent, you’ll want to find a lower-interest option.
  • Bad credit loans can come with challenges like higher interest rates and fees.

It’s not uncommon for those with less-than-stellar credit to have difficulty getting approved for a loan, as many lenders see low credit as a potential risk factor. Fortunately, there are specific online lenders, community banks and credit unions that work with borrowers across the credit spectrum. Bad credit loans are personal loans that can be used to finance nearly every legal expense. However, they often come with some of the highest rates on the market and offer unfavorable terms compared to fair or good credit loans.

Where to get a bad credit loan

Not every financial institution offers bad credit loans, but you’re most likely to find one through an online lender,  a community bank or a local credit union. When starting your research process, look into the following institutions to avoid predatory loans — like payday loans — or misleading lending practices.

Online lenders

Several online lenders offer personal loans for applicants with lower credit. They typically host a quick, streamlined application process on their website and offer lending decisions within minutes of submission. If approved for the loan, some will disburse the funds as soon as the same day, while it may take other lenders a few days before the direct deposit hits your bank account.

Given that there are a seemingly endless amount of lenders, it can be easy to get overwhelmed with the number of options. This is where an online lending network could help. They’re online marketplaces that feature the details of different lenders based on category, making it easier to sift through and compare lenders.

Using an online network also simplifies the research process, as you can view and compare offers from several lenders with a single application. Most lenders also allow you to see your eligibility odds and predicted interest rates without impacting your credit through prequalification.

Before you apply for the first loan that looks good, keep in mind that lenders charge higher rates to those with low credit. Plus, fees are often higher for bad credit loans, so look at each lender’s fee structure and integrate the costs into your total monthly payment estimation before applying.

Who should consider an online lender?
Those who prefer to get a loan without visiting a brick-and-mortar location.

Banks or credit unions

Some smaller or local community banks will consider lending to people with bad credit. Still, it can be difficult to get approved because most lending decisions are based solely on your creditworthiness and income. If you strike out at your local bank, you may have more luck with your local credit union if you meet all of the membership requirements.

Credit unions tend to be more lenient than community banks because they are member-focused. Each credit union serves a different people group, with some operating on a local level, and others extended membership on a national level.

Regardless of whichever type of credit union you choose, you must qualify for membership to get approved. Most have fairly simple membership requirements based on occupation, association or area of residence. Federal credit unions work with customers needing to qualify for membership prior to getting approved.

Some federal credit unions offer payday alternative loans (PALs) geared toward borrowers with bad credit. They carry rates that cap out at 18 percent, compared to payday loans, which can have rates as high as 400 percent.

Who should consider a bank or credit union?
Those who wish to bank locally, qualify for a credit union membership or want to take out a PAL.

Pay advance apps

Pay advance apps are designed to help you access your paycheck earlier than your expected deposit date. Due to the nature of this method, you’ll need to have a steady source of income. Regardless of your credit score, the more predictable your paycheck is, the more likely you will qualify for an advance.

A paycheck advance isn’t a loan, and there’s no interest charged. Most apps charge fees or require additional tips. The fees may seem small, but remember that a fee of $15 for a $500 cash advance is equivalent to an APR of nearly 36 percent.

Another factor to keep in mind: You will be drawing from your future income. This means a lower amount on your actual payday, which could make future bills harder to pay.

Who should consider a pay advance app?
People with steady paychecks that need a quick boost to their bank account.

Bad credit loans to avoid

Some bad credit loans can be predatory with unreasonably high interest rates or ask for collateral like your car. These options should only be used as a last resort.

Payday lenders

Payday lenders can offer small short-term loans, up to $500. It’s easy to be approved for these products even if you have bad credit, but there are significant drawbacks: You’ll pay a hefty interest rate, sometimes up to 400 percent, and only have a short window to repay what you owe.

One challenge borrowers may face with a payday loan is paying back the loan by the due date, typically the next payday. Unfortunately, this leads to even more fees and a perpetual high-interest debt cycle that’s very challenging to end. Despite their convenience, these loans should only be used as a last resort.

Title lenders

Title lenders also cater to borrowers with bad credit scores. Car title loans are installment loans that are relatively easy to qualify for. In most cases, you’ll make equal monthly payments over a set period — up to six months. You could also get a slightly lower interest rate than with a payday loan.

Still, these loans are risky since they use your vehicle as collateral. If you fall behind on your payments, your lender could repossess your car.

How to get a bad credit loan

Getting a loan with a low credit score can be challenging, but options are available. Traditional personal loans may be hard to qualify for, so make sure you’re well aware of the lender requirements before applying. Here are some steps to increase your chances of approval for a loan with low credit.

  • Check your credit score: Before you apply for anything, check your credit score. The lower your score, the more challenging it may be to qualify for a loan.
  • Apply with a co-signer or secured loan: Having someone with excellent credit sign for a loan with you can help you qualify, but your repayment behavior will impact their credit and yours.
  • Investigate Secured loans: These loans use an asset like a home or car as collateral, which can result in more favorable rates compared to unsecured loans. However, they pose more of a risk for the borrower: If you default on the loan, you risk losing your collateral.
  • Prequalify first: Loan applications require a hard credit check, temporarily knocking your score down about 10 points. Prequalification doesn’t guarantee approval but lets you see your predicted rates without impacting your credit.
  • Know the risks: Lenders who provide loans to individuals with bad credit may charge higher fees and interest rates to compensate for the risk. It’s important to fully understand the costs associated with the loan and ensure you can make timely payments.

Bottom line

Bad credit loans can help you get out of a financial bind. They are often more costly than personal loans, so borrow with caution.

Familiarize yourself with each option and its benefits and drawbacks, and get quotes from at least three lenders to find the most competitive loan offer. Depending on the loan terms, you could be better off cutting expenses to free up funds, applying for a credit card or finding other alternatives.

Frequently asked questions about bad credit loans

  • Common types of bad credit loans include traditional personal loans, loans with a co-signer or secured loans, payday advances and car title loans.
  • Qualifying for a bad credit loan depends on the lender and type of loan you are applying for. Generally, you will need to have a steady source of income and may need to provide collateral or a co-signer. It’s also important to check your credit score before applying.
  • Yes, there are risks associated with bad credit loans. Borrowers are usually charged higher fees and interest rates, and some loans may require collateral. It’s important to be aware of the costs associated with the loan and have a plan to make timely payments.