Personal Loans for Bad Credit: Realistic Options and How to Improve Your Odds

How credit scores affect personal loan eligibility

Credit scores are a primary factor lenders use to evaluate personal loan applications. A FICO score below about 580 is generally considered "bad credit," though lenders may have their own thresholds.

With a lower score, lenders see you as a higher-risk borrower. In response, they may offer loans with higher interest rates and fees—if they offer you a loan at all. Some lenders specialize in bad-credit borrowers, but the terms can be significantly more expensive than those for borrowers with good credit.

Sources: Experian, Debt.org

Types of lenders that offer bad-credit personal loans

Several types of lenders may consider applicants with bad credit. Online lenders and financial technology companies often use alternative underwriting, looking beyond your credit score to factors such as education and employment history. Some banks also offer loans specifically for borrowers with lower credit scores, and credit unions may provide small-dollar loan options.

A few examples of lenders that commonly serve bad-credit borrowers include Upstart, which has no minimum credit score and considers alternative factors; Avant, which requires a score of 580 but offers loans with fixed rates; and OneMain Financial, which provides secured and unsecured loans with no minimum credit score requirement.

Sources: LendingTree, CNBC Select, MoneyLion

Secured vs. unsecured options for bad credit

Bad-credit borrowers may have a choice between unsecured and secured personal loans. Unsecured loans do not require collateral, but because the lender bears more risk, they often come with higher interest rates and stricter approval requirements.

Secured loans are backed by an asset, such as a car or a savings account. This collateral reduces the lender's risk, which can make approval easier and possibly lead to lower rates. However, if you default, you could lose the asset.

Sources: MoneyLion, Bankrate

How to compare rates and fees when you have bad credit

When you have bad credit, interest rates can vary widely. Origination fees—which are deducted from the loan amount before you receive the funds—can also add to the cost.

Before accepting any offer, you should shop around and compare quotes from multiple lenders. Look at the APR, which includes both interest and certain fees, as well as any upfront fees and prepayment penalties. Review all terms carefully, and don't sign anything you don't understand.

Sources: Los Angeles County Department of Consumer and Business Affairs, MoneyLion

Steps to improve your approval chances before applying

You can take several steps to improve your chances of approval and possibly get better terms. Adding a co-signer or co-borrower with good credit can strengthen your application, as the lender can consider that person's creditworthiness. Some lenders also consider alternative factors such as your education and employment history, so be prepared to provide that information.

Before shopping for loans, check your credit report and correct any errors. You might also consider paying down existing debt or waiting until you have a more stable income. While these steps may not guarantee approval, they can help you present a stronger financial profile.

• Add a co-signer or co-borrower with good credit
• Shop around and compare offers from multiple lenders
• Correct errors on your credit report
• Gather documentation to show income and employment history

Sources: MoneyLion, Experian

Avoiding predatory lenders

Predatory lenders often target people with bad credit or financial distress, offering loans with exorbitant rates and hidden fees. They may use practices such as inadequate disclosure, inflated fees, and loan flipping. Some predatory loans are structured with balloon payments or adjustable rates that can lead to default.

Be wary of lenders who guarantee approval without a credit check, charge upfront fees before you receive the loan, or offer terms that seem too good to be true—such as unusually low rates for your credit profile. Legitimate lenders will always review your credit and financial details before approving a loan.

If you default on an auto title loan, you could lose your vehicle.

• Guaranteed approval with no credit check is a red flag.
• Upfront fees before funding are a sign of a scam.
• Unrealistically low rates for a bad-credit borrower are a warning.
• Legitimate lenders review your credit before approving.

Sources: Debt.org, Bankrate, New York State Department of Financial Services, Experian

Alternatives to bad-credit personal loans

If you have bad credit, you are not limited to high-cost personal loans.

Other options include borrowing from family or friends, using a credit card cash advance (if you have a credit card), or seeking assistance from a nonprofit credit counseling service. These alternatives may have lower costs than a bad-credit personal loan.

Sources: Experian, Bankrate

Comparing your options: key criteria

When comparing personal loan offers, focus on a few key factors: the annual percentage rate (APR), which includes interest and certain fees; the loan amount you can borrow; any origination fees or other upfront costs; and whether you can use collateral or a co-signer to improve your terms.

The table below shows examples of lenders that commonly serve bad-credit borrowers. Note that APRs and loan amounts are as reported by financial sources and may change based on your credit profile and other factors.

Sources: CNBC Select, LendingTree, MoneyLion