How and Where To Get a 500 Credit Score Loan

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.

What is a 500 credit score considered?

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%)

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. 

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Related: How To Build Credit

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.

Read More:

• What Are the Requirements for a Personal Loan?
• How Long Does It Take To Get a Personal Loan?
• How Much of a Personal Loan Can I Borrow?
• Types of Bad Credit Loans
• Best Personal Loans for Fair Credit
• Best Banks for Personal Loans
• Best Credit Unions for Personal Loans