Where can you find a loan if you have a 500 credit score?
Most lenders require borrowers to have fair, good, or excellent credit, but loan options exist for people with poor credit. Getting approved, and getting an affordable interest rate, can be challenging but not necessarily out of reach.
We'll cover the best loan types for bad credit and offer tips to improve your chances of getting approved for a loan with bad credit.
Compare personal loans for bad credit
What is a 500 credit score?
Bad credit is generally defined as a FICO score of less than 580, so a 500 credit score falls firmly in the bad credit range. Lenders tend to view people with lower credit scores as riskier applicants who are less likely to repay their loans.
Your FICO score, the score most commonly used by lenders to evaluate credit applications, has five parts. Each part accounts for a certain percentage of your overall score:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- Credit mix (10%)
- New credit (10%)
Editor insight: “With certain types of loans, including personal loans, lenders report to one or more of the credit bureaus that determine credit scores. Your credit score could improve if you repay a personal loan on time and in full, mainly because payment history and amounts owed together account for 65% of your FICO score.” — Barry Bridges, Personal Loans Editor
500 credit score loan options
The lower your credit score, the fewer loan options you have. However, borrowers with 500 credit scores may have a better chance of approval with the following loan types:
Personal loans for bad credit
Some lenders offer bad credit loans. These loans tend to have higher annual percentage rates (APRs) than loans for people with fair, good, or excellent credit. However, they can be an excellent alternative to short-term, high-interest loans like payday loans or pawnshop loans.
Tip
A loan’s APR represents overall borrowing costs, including the loan’s interest rate plus upfront fees.
Compare: APR vs. Interest Rate on a Personal Loan: What To Know
Personal loans are typically installment loans with fixed rates and monthly payments that you repay over a period of several years. Most are unsecured and don’t require collateral. Personal loan lenders typically check your credit. But relatively low fees and low monthly payments make them much less expensive than payday loans, pawnshop loans, and similar loans, which frequently have triple-digit APRs.
Important
According to Credible data, the average APR on a three-year personal loan for borrowers with credit scores below 580 is 31.69%. Depending on the state where you live, payday loan APRs can exceed 600% and pawnshop loan APRs can exceed 200%.
Secured personal loans
Secured personal loans require you to pledge collateral, such as a vehicle, savings account, collectible, piece of jewelry, or even the fixtures in your home. If you default, the lender can take ownership of your collateral and use it to recover the amount you owe.
Related: What Can Be Used As Collateral for a Personal Loan?
Cosigned loans
A cosigned loan involves you applying with someone else who guarantees the loan. The cosigner promises to pay off the loan if you can’t, and ideally has good credit. A cosigner could improve your chances of qualifying for a loan, and possibly a lower interest rate. But the loan impacts their credit just as it does yours — making late payments or defaulting would hurt your cosigner’s credit and put them on the hook for repayment.
Explore: Best Personal Loans With a Cosigner
Loans with a co-borrower
Loans with a co-borrower or co-applicant are also known as joint personal loans. A co-borrower refers to a person who applies for a loan with you. Unlike a cosigner, a co-borrower has equal access to the loan funds. But in either case you could have a better chance of qualifying for a loan.
Explore: Best Joint Personal Loans
Payday alternative loans (PALs)
Payday alternative loans are unsecured loans offered through federal credit unions. Loan amounts range up to $2,000, terms are available from one to 12 months, depending on the type of PAL available, and APRs are capped 28%. They’re much more affordable than payday loans and may not require a credit check.
Credit-builder loans (CBLs)
Credit builder loans are designed to help you build credit and are typically available from credit unions. Unlike regular loans, you don’t receive the money upfront. Instead, loan funds are deposited into a locked savings account. You then pay monthly installments, often for a period of six to 24 months.
You might receive the principal in installments every time you make a payment or get the entire loan amount once payments are complete. Payments are reported to the major consumer credit bureaus.
Small bank or credit union loans
Some banks and credit unions offer small, low-cost loans for customers and members. One example is Bank of America’s Balance Assist, which lets customers borrow up to $500 for a $5 flat fee — no interest or finance charges. The loan is repaid over three months in equal monthly installments.
Cash advance apps
Cash advance apps are a popular bad credit loan option because they don’t require a credit check and can deliver a few hundred to $1,000 (in some cases) within hours. However, if not used wisely, they can be as detrimental as payday loans. In fact, the Center for Responsible Lending found that, on average, cash advance APRs were 367% when repaid in seven to 14 days.
Though many cash advance apps only charge “optional” fees, these fees can add up. For instance, to get money immediately, most apps charge expensive fast funding or expedited funding fees, such as $5.99 for transfers over $100. And cash app Dave was recently accused by the Federal Trade Commission of charging hidden fees, in the form of a 15% default tip.
Good to know
Cash advance apps can be a good choice for very short-term financing, but only if you can wait a couple days for the money and don’t tip.
Compare: Payday Loans vs. Cash Advances
APR and monthly payments are typically fixed Successful repayment can improve your credit Prequalification makes it easy to compare lenders | Generally higher APRs than loans for people with good credit | |
Collateral can lower your borrowing costs | Not all lenders offer them | |
Possibility of better APR and terms | Late payments or default could damage the cosigner’s credit (and your relationship with them) | |
Possibility of better APR and terms | Late payments or default could damage the co-borrower's credit (and your relationship with them) | |
APR is capped at 28% | Must be a member of a federal credit union | |
Can improve credit score over time | May not receive funds until loan is paid in full | |
Convenient | Eligibility generally limited to customers or members | |
Can be fee-free if you can wait for money | Fees can add up Short-term repayment Small loan amounts Could lead to bank overdrafts and repeat borrowing |
Prequalification for a 500 credit score loan
Many personal loan lenders offer prequalification, which can help you find out which lenders you’re most likely to qualify with. Prequalifying with a soft credit inquiry doesn’t hurt your credit score, but it’s not a loan offer. Once you complete a full loan application, the lender typically conducts a hard credit check, which could temporarily ding your credit score.
How does your credit score impact personal loan options?
Many personal loan lenders have minimum credit score requirements. If your credit score falls below the minimum, you're unlikely to qualify for a loan with that lender. However, some bad-credit personal loan lenders, such as OneMain Financial and Upstart (if you apply via its website), don't require a minimum credit score.
Lenders may also consider factors besides your credit score, including:
- Your income and employment
- Whether you're applying with a cosigner or a co-borrower
- Whether you're applying for a secured loan
So while credit score is a factor in getting a personal loan, it's not the only factor.
How to compare bad credit loan options
Here are some important factors to consider as you figure out which loan option is best for you:
- Cost of borrowing: Although certain types of loans can be easier to get than others, accessibility sometimes comes at a price. Payday loans, pawnshop loans, and cash advance apps don't require minimum credit scores. But the combination of fees and short repayment terms means that triple-digit APRs and loan defaults or extensions are common.
- Loan amount: Some bad credit loans top out at a few hundred dollars. Find a lender that offers the loan amount you need instead of seeking multiple loans from multiple lenders. To get approved for a larger loan amount, consider applying with a cosigner or with a co-borrower and/or getting a secured personal loan.
- Length of repayment term: Consider how much time you have to repay the loan and whether you can comfortably afford the monthly or weekly payment for the entirety of the loan's term.
- Credit bureau reporting: One of the best things you can do is improve your credit if your score is low. But you need to borrow from lenders that report to one or more credit bureaus to do this. Aside from lower rates, credit bureau reporting could be the most important consideration in choosing a loan. Payments on personal loans, PALs, and credit builder loans are typically reported to the bureaus.
Learn More: How To Compare Personal Loans: A Step-by-Step Guide
Tip
Prequalification for personal loans is an invaluable tool for comparing loan options. It provides an estimate of how much it might cost to borrow, how much you might be able to borrow, and how long it might take to repay.
How to improve your loan application
Along with your credit score, some types of lenders consider other factors during the loan application process such as your annual income, debt-to-income ratio (DTI), income stability, payment history, credit history, and more.
You can strengthen your application by showing that you’re financially responsible and stable in various areas, or by applying with someone who is.
Note
Your DTI is calculated by dividing your minimum monthly debt payments by your gross monthly income.
For example, if you’ve made credit mistakes in the past but have made all of your payments on time for the last year, that’s a good sign for potential lenders. Other good signs are having a steady income source and a DTI below 35%. But even so, you’re most likely to get approved if you can apply with someone else who has good credit — either as a co-borrower or cosigner.
Just know that if you can’t afford the payments, that person’s credit — and possibly your relationship with them — will suffer. In other words, don’t take out any loan you can’t afford to repay, especially if it would put someone else’s finances at risk.
Learn More: How To Get Approved for a Personal Loan
How to rebuild your credit
It can take time to improve your credit score and history, but there are a couple of quick-win ways to boost your score:
- Use a service that reports rent and utility payments to the credit bureaus, like Experian Boost (free) and CreditRentBoost (fee-based).
- Become an authorized user on someone else’s credit card. Becoming an authorized user can increase your available credit and decrease your credit utilization. Credit utilization ratio is an important factor in the amounts owed category of your FICO score, which accounts for 30% of your overall score.
Warning
If you become an authorized user on someone’s credit card to boost your score, don’t use that credit card.
When it comes to building (and keeping) good credit long term, employ these tried and true strategies:
- Don’t rely on credit, use it as a tool to improve your score by paying off new charges in full every month.
- Make all payments on time.
- Pay down your credit card balances, or consolidate your debt.
- Leave revolving credit accounts open (but use them sparingly and/or pay them off in full each month).
- Minimize your debt-to-income ratio by increasing your income and/or paying off debt.
- Limit hard credit inquiries by prequalifying with multiple lenders before applying for a loan.
- Build credit with a secured credit card and CBL.
As you work on building credit, keep tabs on your scores and reports. Seeing the results of your actions can help keep you motivated and on track.
FAQ
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Disclosure: Some lending partners that participate in Credible’s comparison marketplace offer loans to borrowers with scores as low as 550. Borrowers with low scores will have fewer lending options than borrowers with higher credit scores.
