How to Get a Loan With Bad Credit

When you’re trying to get a loan with poor credit, it helps to know what counts as “bad” credit in the first place. The FICO® credit scoring model, used by 90% of top lenders, classifies any credit score below 580 as poor. For perspective, the lowest score you can have on the FICO scale is 300, while the highest score is 850.¹

With that in mind, here’s how to get a loan with bad credit.

1. Check credit scores and credit reports

If you haven’t checked your credit lately, that’s a smart place to start when trying to get a personal loan. Reviewing your credit reports and scores can shed light on what lenders will see when they pull your credit.

Specifically, it helps to know:

• Where your score falls in the FICO range
• What type of negative credit report marks, such as late payments, may be hurting your score
• Whether there are any errors on your report that you might be able to dispute

You can get your credit reports from each of the three major credit bureaus for free through AnnualCreditReport.com.² Free FICO scores are available through the Chime mobile app if you have the Chime Credit Builder Visa® Credit Card.

2. Dispute credit report errors

Inaccuracies on a credit report could drag your scores down. Examples of credit reporting errors include:

• Accounts listed that don’t belong to you
• On-time payments that aren’t being reported properly
• Inaccurate balances or credit limits

You have the right to dispute any errors you see with the credit bureau reporting the information. If the credit bureau determines there’s an error, it must be corrected or removed.³

Even if a mistake on your credit history seems small, it may be worth challenging it to get some points added back to your score.

3. Understand your budget

Once you know where you stand credit-wise, the next step is figuring out how much you can afford to borrow.

If you have bad credit, you may have higher interest rates. Lenders use higher rates to offset any perceived risk when making loans to borrowers with lower credit scores. That, in turn, can mean higher monthly payments.

An online loan calculator can help you estimate your payments, depending on how much you need to borrow and your preferred loan term. You can experiment with different loan terms to find a payment range that fits your budget.

4. Compare lenders

When you’re looking for a loan with bad credit or no credit, there are a few places you can try, like banks, credit unions, and online lenders.

Whether you’re starting your search for loans at a bank or elsewhere, it helps to know what to consider when comparing the options. Here are some of the most important factors to weigh:

• Minimum and maximum loan amounts
• Loan repayment terms
• Interest rates
• Fees
• Minimum credit score and income requirements

Once you’ve chosen a lender that meets your needs, you can move on to the next step.

5. Get pre-qualified

Pre-qualification or pre-approval means that a lender has made a conditional loan offer to you based on a cursory look at your credit scores and income. Getting pre-qualified doesn’t guarantee that you’ll be approved for a loan, but it can give you a feel for what you might be able to borrow.⁴

Many lenders offer pre-qualification or pre-approval online. You can get rate quotes and compare loan terms, usually without a hard credit pull. A hard credit check means someone (i.e, a lender) has viewed your credit reports, usually for the purpose of approving you for credit. Soft pulls, on the other hand, happen when you check your own credit history or someone else pulls it to preapprove you for credit.

Soft pulls don’t affect your credit, but hard credit checks can lower your score by a few points. Keep in mind that if you move ahead with a full loan application, that usually requires a hard credit check.⁵

6. Consider a co-signer

If you’re struggling with how to get a personal loan with bad credit, a co-signer could make things easier. A co-signer is someone who agrees to sign off on a loan or line of credit with you.⁶

If your co-signer has good or excellent credit, a lender might be more willing to approve you for a loan. You may be able to score a lower interest rate as well. But…there’s a catch.

Should you default on the loan, the lender can come after you and your co-signer for the debt. Late payments can be reported on both of your credit reports, causing credit score damage. Not to mention, you could both end up on the receiving end of a creditor lawsuit.

That could lead to some bad blood with your co-signer. Make sure you can repay the loan on time so neither of you ends up in hot water with the lender.

7. Consider a secured loan

When comparing loans for bad credit, you typically have two options: secured or unsecured. Secured loans require some kind of collateral to get approved. For example, you might pledge your vehicle as collateral if you own a car.⁷

A secured loan might be easier to get with bad credit since the lender has a built-in safety net. If you don’t repay the loan, the lender gets to keep your collateral.⁷

Unsecured loans don’t have that requirement, which means you’re not at risk of losing anything you own. But if you have bad credit, you might find it harder to get approved for unsecured loans.

Before looking for a loan with bad credit, it helps to weigh the risks. The biggest, of course, is having to pay a higher interest rate to borrow.

A higher rate can increase your monthly payments, but it also increases your overall cost of borrowing. For example, let’s assume two people want to borrow $10,000. One has excellent credit, the other bad.

Both borrowers are approved for a loan with a three-year repayment term. Borrower A qualifies for an interest rate of 5.99%, while Borrower B is paying 18.99%. Here’s what their monthly payments and total interest paid would look like:

• Borrower A: $304.17 monthly payment; $950.27 total interest paid
• Borrower B: $366.51 monthly payment; $3,194.35 total interest paid⁸

As you can see, Borrower B will pay $2,244 more for the loan, thanks to the higher interest rate. At the higher end, interest rates for bad credit loans can top 30%, so it’s essential to shop around for the lowest rate possible to cut costs.

Bank loans and loans from online lenders can help you get cash when you need money, but they aren’t the only option. Here are a few other possibilities for borrowing or raising funds when money is tight.

• Ask friends and family. Family members or friends might be willing to lend you money in a pinch if you’re on good terms, with no credit check required. Just keep in mind that if you don’t pay them back, that could hurt your relationship.
• Use a payday advance app. Payday loans can be a high-risk way to borrow since they can carry triple-digit interest rates.⁹ On the other hand, you might be able to get a small loan from a payday advance app with no credit check, no interest, and no fees.
• Consider a credit card cash advance. If you have a credit card, you might be able to charge whatever you need to pay for it in place of a loan. Or, you may opt for a cash advance. Just remember that a credit card cash advance can carry a higher APR than purchases, making it an expensive way to borrow.
• Sell things you don’t need. Selling things around the house is another way to get money quickly, without having to take out a loan. Some of the best items to sell for cash include gaming consoles and video games, old cell phones or electronics, and unused gift cards.

Your options for getting loans with bad credit can include banks, credit unions, and online lenders. You may also consider some of the alternative lenders or loan options outlined earlier.

Bank loans can be harder to get with bad credit since a bank might have a higher minimum credit score requirement. On the other hand, an online lender may be willing to offer loans to borrowers with lower scores. Online lenders may also offer better terms to borrowers with bad credit compared to lenders that don’t require a credit check.

You can start with your current bank or credit union to see what options might be available. From there, you can cast the net wider to look for online lenders that offer personal loans for bad credit.

A low credit score can be frustrating, but it’s not an absolute obstacle to getting a personal loan. Knowing how to get a loan with bad credit and what that might mean financially, in terms of the interest and monthly payments, can make it easier to find the right lender to work with.

Find out how to start building your credit to qualify for better loan rates in the future.