You’ll typically need good to excellent credit to qualify for the best personal loans. That means your FICO score should be 670 or higher if you want the most lending options, the lowest rates, and favorable loan terms.
But you’re not without options if you have a low credit score. Some lenders offer personal loans for bad credit. And some let you apply with a cosigner, which can make you eligible for loans you otherwise wouldn’t be or lower your rate.
Compare personal loans for bad credit
If you have a credit score below 580, your credit is considered poor, which can make it difficult to qualify for a personal loan with most lenders. However, we partner with a handful of lenders that offer personal loans for bad credit.
Best personal loans for bad credit
What is a personal loan?
A personal loan is an installment loan that allows you to borrow money for various purposes. Unlike funds from a mortgage or auto loan, which must be used to pay for your house or car, respectively, a personal loan can be used to finance a home renovation project, consolidate high-interest debts, or for almost any other reason.
Personal loans are typically unsecured, meaning you don’t have to secure the loan with collateral. But if you find a lender that offers secured loans, you may be able to get a lower rate. Repayment terms on personal loans typically range from two years to seven years, or more. Average personal loan rates start below 10%, but can run up to around 36% if you have bad credit. You also may be charged an origination fee upfront, which reduces the amount you receive.
What is a 550 credit score considered?
If you have a 550 FICO credit score, you have poor or bad credit. Any FICO score below 580 is considered bad credit, which is well below the average score in America and considered higher risk.
Raising your score above 580, into the fair credit range, could significantly help improve your chances of getting approved for a loan. Paying off existing debts to lower your debt-to-income ratio (DTI) and maintaining on-time payments are the most impactful steps you can take.
How to compare bad credit loan options
Before choosing a bad-credit lender, be sure to compare your options.
Prequalify with multiple lenders to gauge what offers might be available to you, but keep in mind that prequalification is not an official offer of credit or guarantee of a loan. However, it gives you a starting point for comparing lenders.
Tip
Prequalification involves a soft credit pull and won’t impact your credit. If you apply for a loan, however, the lender may conduct a hard pull which could ding your score for up to a year.
After prequalifying, compare APRs, whether there's an origination fee and how much, as well as the loan amount and the terms offered.
- APR: The APR is a key factor to compare since it reflects both the interest rate and any upfront fees, giving you a truer measure of the loan's total cost than the interest rate alone. A lower APR means lower borrowing costs, so aim for the most competitive rate you can get.
- Origination fee: An origination fee is a one-time charge deducted from your loan amount before disbursement. As noted, it's reflected in the loan's APR and will reduce the amount you receive.
- Repayment terms: Also consider loan terms. Longer loan terms may lower your monthly payments but could result in higher overall interest costs. Consider whether the lender provides flexibility, such as the ability to change your payment date or offers hardship assistance if needed.
- Loan amount: If you have bad credit, you may not qualify for the full loan amount you request. See which lenders are most likely to lend the amount you need with the fewest fees.
Finally, look into your possible lender's customer service. Some things to consider include whether lenders offer an app, methods of communication — text, email, or phone call — and their responsiveness. Check reviews online at sites like the Better Business Bureau (BBB) before choosing a lender.
How to get a personal loan with bad credit
If you’re ready to apply for a personal loan, follow these steps:
- Check your credit: Many lenders have minimum credit score requirements, so check your credit first to see where you stand and which lenders are options. You can use a site like AnnualCreditReport.com to review your credit reports for free. If you find errors, dispute them with the appropriate credit bureaus to potentially boost your score.
- Know what you need: Determine how much you need to borrow and what monthly payment you can afford. Then, look for lenders that offer the loan amount you need and require a minimum credit score below yours. If that doesn’t turn up much, look for lenders that allow cosigners — and find a cosigner who’s willing to vouch for you on a loan.
- Prequalify with lenders: Once you’ve narrowed down a list, prequalify with those lenders to get an estimate of the annual percentage rates (APRs) and loan amounts you might qualify for, as well as whether you’ll qualify for a personal loan at all. Prequalification won’t impact your credit, but formally applying for a personal loan could lower your credit score — usually by no more than 5 points for up to a year.
- Compare lenders: Along with credit requirements, consider APRs, repayment terms, and fees charged by the lender. After you’ve compared personal loans, choose the option you like best.
- Complete the application: Once you’ve picked a lender, you’ll need to fill out an application and submit required documentation, such as tax returns and pay stubs.
- Review the loan agreement: If approved, review the loan agreement and sign if the terms are acceptable — check the APR, fees, and repayment period, and when the first payment is due.
- Await your funds: Some lenders offer same-day funding after loan approval, but it’s more likely that your loan will be funded the next business day after or within a few business days of your loan approval.
Tip
If you’re still struggling to qualify, consider a credit-builder loan, which is easier to qualify for and can improve your credit score so you can later apply (and ideally be approved) for a personal loan.
How credit scores affect loan rates
Your credit score plays a major role in determining the APR you qualify for when you apply for a personal loan. In general, the lower your credit score, the higher the rate you’ll likely pay.
For example, here’s how your credit score could affect how much you’d pay on a $10,000 personal loan with a three-year term. Note that some borrowers with fair credit might pay almost $1,300 less in interest relative to borrowers with poor credit.
Average APRs are based on the personal loan interest rates borrowers received when they applied for a personal loan through Credible in September 2024.
You can estimate how much you’ll pay for a loan using a personal loan calculator.
Pros and cons of bad-credit loans
As with any financial product, consider the benefits and downsides of personal loans for bad credit before you apply.
Pros
- Flexible financing
- Fast funding
- Build your credit
Cons
- High APRs
- High fees
- May require collateral
- Potential credit harm
Pros
- Flexible financing: You can use personal loan funds for virtually any purpose, from covering a large unexpected expense to financing a kitchen remodel.
- Fast funding: Banks and credit unions typically fund loans within 1 to 5 days. Even better, many online lenders can disburse funds as soon as the same day you apply.
- Build your credit: You can build your credit by making consistent on-time payments on a personal loan. Remember, your payment history makes up 35% of your FICO credit score.
Cons
- High APRs: Lenders typically reserve their best interest rates for borrowers with solid credit. If your score isn’t great, you may receive interest rates from lenders ranging up to 36%, depending on your credit and other factors.
- High fees: Lenders offering personal loans for borrowers with bad credit reduce their risk by charging higher fees and interest rates, which ultimately results in higher APRs. Fees may include an origination fee to process the loan and an early repayment penalty.
- May require collateral: While most personal loans are unsecured, your lender may want you to provide collateral to secure your loan. Be aware that the lender can seize your collateral if you fail to make your payments as agreed.
- Potential credit harm: Just as making your payments on time can build your credit, late or missed payments can negatively affect your credit.
How to improve your credit score
Taking steps to improve your credit score can help you qualify for a personal loan and with better rates. Here’s how:
- Consistently pay bills on time: Payment history is the most important factor in calculating your FICO credit score. Help ensure you’re never late by setting up automatic payments for recurring bills like car payments, credit cards, and personal loans. If a number of your bills are due around the same time each month, reach out to your creditors to change due dates for more breathing room.
- Pay down debt: Your credit utilization ratio makes up 30% of your FICO score. Credit utilization is the percentage of your available revolving credit you’re currently using. Lenders consider borrowers with high credit utilization ratios high-risk. As such, paying down your debt can positively impact your credit and your ability to qualify for a personal loan.
- Don’t close credit card accounts: Closing old credit card accounts with a zero balance may seem like a good idea, but it can drastically increase your credit utilization ratio, which can hurt your credit. Keeping accounts open once you’ve paid off balances can be a good way to keep your credit utilization ratio low and improve your score.
- Avoid hard inquiries: A hard inquiry is when a lender pulls your credit for a loan or other financial product application. The inquiry will appear on your credit report and could cause your score to temporarily dip. A lender may see you as a risk if you seek to borrow money multiple times from different sources. Applications for new credit make up 10% of your credit score.
Alternatives to personal loans
Personal loans come with many advantages, but they’re not for everyone. Consider these alternatives, especially if you have bad credit:
- Borrow from friends or family: No matter the terms, put your agreement in writing, including the loan amount, interest or collateral, repayment period, and due dates.
- Use a credit card: If you have available credit on a card, consider using it instead of a personal loan. The interest rate on your card may not be as high as what you’d get with a bad-credit personal loan. Prequalify with a few personal loan lenders to see how the rate on your card compares.
- Consider a debt management plan: If you’re drowning in debt, seek help from a nonprofit credit counseling agency. A certified credit counselor can help you create a debt management plan that could lower your interest rates and help you pay debt off sooner.
- Use a fee-free cash advance app: If you need a small amount of cash, consider a cash advance app without fees. Just remember that while some apps don’t have mandatory fees, most charge a fast-funding fee, which can make these loans very expensive.
Dori Zinn has contributed to the reporting of this article
Read More:
- How Does a Personal Loan Affect Your Credit Score?
- How To Get a Low-Interest Loan
- Best Personal Loans for Bad Credit
- Best Personal Loans for Fair Credit
- Best Personal Loans With a Cosigner
- Best Low-Interest Personal Loans
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.
