How to Qualify for a Personal Loan With Bad Credit

Personal loans for bad credit are available, but they are more expensive than those for borrowers with good credit. Find lenders with the best rates and fees.
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People with credit problems often feel shut out of the financial system. However, with an expanded range of lending options, there may be more personal loans for bad credit borrowers.

If used carefully, personal loans can help rebuild your credit, as long as you don’t repeat the same mistakes that damaged your credit in the first place.

Personal Loans for Bad Credit Defined

For starters, what do people mean when they talk about “bad credit?”

If you have a credit score of 670 or better, lenders are likely to view you as a reasonably safe risk. On the other hand, if you have a score below 580, your credit score is in the bottom 17 percent of the population. At that level, you are unlikely to find a legitimate lender who extends a loan to you.

The grey area between good credit and terrible credit is the range between 580 and 670. That level means you probably have some credit problems, but it isn’t hopeless. Your credit is bad enough that it is likely to cost you more to borrow, but you still have a chance of getting a loan.

Of course, just because you can get a loan doesn’t mean you should. Before you borrow, you should weigh the pros and cons of taking out a personal loan with bad credit.

Which Lenders Have the Best Personal Loan Rates?

Finding the lender with the best personal loan to meet your needs is as simple as using our comprehensive listing. Compare personal loans and find the best rates being offered today.

Bad Credit? Personal Loan Pros and Cons


  • Flexible Use: Personal loans offer flexibility in how you can use the funds. Whether you need to consolidate debt, make a large purchase, cover medical expenses, or finance a home improvement project, personal loans provide the freedom to use the money as you see fit.
  • Fixed Interest Rates: Many personal loans come with fixed interest rates, which means your monthly payments remain consistent throughout the loan term. This predictability can help with budgeting, as you won’t be surprised by fluctuating interest rates.
  • Quick Access to Funds: Compared to other types of loans, personal loans typically have a quicker approval process. Once approved, you can often receive the funds within a few days, making personal loans an excellent option for urgent financial needs.
  • Build Credit History: Responsible management of a personal loan can positively impact your credit score. Making timely payments demonstrates financial responsibility, which can help improve your creditworthiness over time.


  • High Interest Rates: Depending on your creditworthiness, personal loans can come with relatively high interest rates compared to other forms of borrowing, such as secured loans. This can result in higher overall borrowing costs, especially for individuals with lower credit scores.
  • Origination Fees: Some lenders charge origination fees when issuing a personal loan. These fees are typically a percentage of the total loan amount and can add to the overall cost of borrowing. It’s essential to factor in these fees when considering a personal loan.
  • Potential for Debt Accumulation: Without proper financial discipline, taking out a personal loan can lead to increased debt accumulation. It’s crucial to borrow only what you need and can afford to repay to avoid falling into a cycle of debt.
  • Risk of Default: Defaulting on a personal loan can have serious consequences, including damage to your credit score and potential legal action by the lender. Before taking out a personal loan, it’s essential to assess your ability to repay the loan on time and in full.

There are some compelling upsides to getting a personal loan when you are committed to repairing your credit. The best case, if you plan carefully for how to repay the loan, is that a successful borrowing and repayment experience might help you rebuild your credit history. You can improve your chances of a positive outcome if you shop carefully for your personal loan.

When you have bad credit, the disadvantages of additional borrowing relate to high costs. In theory, personal loans can be a cheaper alternative to credit card debt. On average, personal loan rates are lower than credit card rates, but those averages go out the window when it comes to people with damaged credit. A look at lending sites that cater to lower-credit score borrowers found some personal loan rates in excess of 35%, compared to the national average of less than 11%.

Another potential drawback is that borrowing money with bad credit can do further damage to your credit score. The additional debt will probably count against you, and things can get even worse if you are late in repaying the loan.

How to Get a Personal Loan with Bad Credit

Here are eight tips for how to get a personal loan when you have bad credit:

1. Fix Your Credit Report

There may be mistakes you can clear up or late payments you can catch up with. Also, if there are some older problems on the report, you might want to wait for them to drop off before you apply for your loan.

2. Look Beyond Big Banks

Big, traditional banks tend to be the most conservative. Local banks and credit unions may have programs more geared to the needs of your area, and peer-to-peer lending sites can match you up with investors who are willing to take some risk.

3. Prepare a Budget

For your benefit and the lender’s, prepare a budget for how you will repay the money given your current income and financial obligations.

4. Consider Collateral

If you have anything of value that can be put up as security for the loan, this might go a long way toward reassuring a potential lender.

5. Find a Co-signer

Getting someone with good credit to co-sign the loan with you is another way to reassure lenders — if you can find someone willing to put their credit record on the line for your loan.

6. Compare Rates for Your Credit Score

Rate shopping may be especially important for poor-credit borrowers, since rate differences may be greater at higher rate tiers.

7. Keep Loan Terms Short

Given how high personal loan rates are for borrowers with poor credit, choosing a three-year rather than a five-year loan can make a substantial difference in how much total interest you pay over the life of the loan.

8. Know Where to Draw the Line

Taking on an interest rate of 30 percent or so is a questionable enough financial decision, but make sure you do not resort to using a short-term payday lender. According to the Center for Responsible Lending, annual percentage rates on these paycheck-to-paycheck loans average a staggering 391 percent.

Getting a personal loan with bad credit isn’t easy, and that’s just as well. Forcing you to think carefully about the loan before you commit could keep you from making an expensive mistake.

Richard Barrington, a Senior Financial Analyst at MoneyRates, brings over three decades of financial services expertise to the table. His insightful analyses and commentary have made him a sought-after voice in media, with appearances on Fox Business News, NPR, and quotes in major publications like The Wall Street Journal and The New York Times. His proficiency is further solidified by the prestigious Chartered Financial Analyst (CFA) designation, highlighting Richard’s depth of knowledge and commitment to financial excellence.
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