It’s not uncommon for those with less-than-stellar credit to have a hard time getting approved for a loan. Fortunately, loans specifically geared toward low credit borrowers are available through online lenders, select banks and credit unions.

Not every loan is made equal and some may be a better fit for your finances than others, so it’s vital to understand how they work before applying. Here’s everything you need to know about bad credit loans and how to find the best one for your credit situation.

Online lenders

Several online lenders offer bad credit personal loans. The application process is generally streamlined, and you could get a lending decision in minutes. If approved, some lenders also offer same or next-day funding.

You can also use an online lending network to view and compare offers from several lenders with a single application. Generally, you can see quotes without impacting your credit since it only results in a soft credit pull. Some online lenders also offer pre-qualification tools on their websites that don’t hurt your credit score.

But there’s a downside that comes with online lenders. You’ll likely get a high APR if your credit score is low, as you pose an elevated risk to the lender. Loan origination fees must also be considered (if applicable) as they account for 1 to 8 percent of the loan amount.

Who this is best for: People who prefer to get a loan without having to visit a local branch.


  • Streamlined application process and fast lending decision
  • Same or next-day funding available


  • Steep borrowing costs
  • Loan origination fees (if applicable)

Bank or credit union

Traditional banks may also offer loans for borrowers with less-than-stellar credit or low credit history.  However, they may not be the best choice because most lending decisions are based solely on your creditworthiness and income. So, a lower score may equal an automatic denial if it doesn’t meet the minimum threshold.

Credit unions tend to be a bit more lenient than banks. They also evaluate credit scores and income when deciding if you’re a good fit for a loan, but the upside of working with a credit union is the relationship factor. Credit unions are member-focused, giving you an advantage and possibly helping you get approved, even with a lower credit score.

Who this is best for: Banks or credit unions are ideal for borrowers who are also account holders that want to leverage their relationship with the financial institution when seeking approval.


  • Longer wait times for approvals
  • Established account holders could get approved with lower credit scores


  • Stringent qualification criteria
  • Higher APRs than online lenders

Payday lenders

Payday lenders offer small short-term loans of up to $500. Even if you have bad credit, these loan products are easy to get approved for, but there’s a significant drawback. You’ll pay a hefty interest rate, often up to 400 percent, and only have a small window to repay what you owe.

Many borrowers cannot pay back the loan by the due date, which is typically your next payday. Unfortunately, this leads to even more fees and a perpetual high-interest debt cycle that’s practically impossible to escape. Despite their convenience, these loans should only be used as a last resort.

Who this is best for: Borrowers who’ve exhausted all other options.


  • No credit check required
  • Same-day funding


  • Excessive APRs and steep fees
  • Short repayment period

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. You’ll make equal monthly payments over a set period of up to six months in most cases. You could also get a slightly lower interest rate than what you’d get with a payday loan.

Still, these loans are risky as they use your vehicle as collateral. And if you fall behind on the payments, your car could be seized to recoup what’s owed to the lender.

Who this is best for: People who have the means to make timely loan payments.


  • More favorable interest rate than payday loans
  • Easy to qualify for with bad credit


  • Requires collateral to get approved
  • Collateral is at risk for seizure

Bottom line

Bad credit loans can help you get out of a financial bind if you can’t secure funding from a traditional bank. They are sometimes more costly, though, depending on the loan product you select.

Familiarize yourself with each option along with the benefits and drawbacks it offers, 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 borrowing the funds from a relative or friend.