How to Get a Personal Loan With Bad Credit

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Updated: February 22, 2024

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Securing a personal loan with bad credit might seem challenging, but it's achievable with the right approach. Understanding the nuances of the loan process when your credit score is less than ideal can help you find a solution. Our page can help you navigate the complexities of applying for a personal loan with bad credit, such as checking your credit standing to choosing the right lender. You’ll find advice allowing you to increase your chances of approval. While you may find challenges like higher interest rates and limited loan options, there are strategies you can apply.

Steps to Obtaining a Personal Loan if Your Credit Is Low

If you have a bad credit score, expect higher interest rates and possibly stricter repayment terms. For example, the Federal Reserve puts the average interest of a 24-month personal loan at 12.35% as of November 2023. However, if your credit is less than ideal, loan offers might show a higher figure.

That said, securing a personal loan with bad credit is still possible. You can take several steps to get through the process effectively, such as understanding your credit standing, preparing the necessary paperwork and anticipating a hard credit check. These could boost your chances of loan approval and ensure you're equipped to handle the responsibilities of securing a personal loan, despite having bad credit.

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If possible, improve your credit score before applying for a personal loan. Pay down and make timely payments on your existing debts, correct any errors on your credit report, and keep your credit utilization low. These steps could help you in getting better loan terms. Alvin Yam, CFP®

1. Check Your Credit Standing

The first step in securing a personal loan with bad credit is a thorough understanding of your current credit standing. You're entitled to a free credit report annually from the major bureaus, which tells you your credit score. Remember, it’s a determining factor in your loan eligibility since it gives lenders an insight into your creditworthiness.

If your credit score isn't as high as you'd like, here's what you can do to improve it:

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    Regularly review your credit report

    Mistakes in your credit report can lower your score. Scrutinize it for any inaccuracies or unfamiliar activities and report them to the credit bureau for correction.

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    Understand what affects your credit score

    Payment history, credit utilization and the length of credit history are just a few factors that impact your score. Understanding these can help you identify areas for improvement.

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    Improve your credit score

    If time allows, take steps to boost your credit. It could involve paying down existing debts or avoiding new credit inquiries.

A better credit standing may open up more favorable loan options and terms. This step lays the groundwork for a successful application for a personal loan with bad credit.

2. Review Your Finances

Your credit standing isn’t the only thing up for review — it’s also best to assess your financial situation if you’re planning to take out a personal loan with bad credit. It ensures you don't take on a financial obligation you can't manage. Consider these aspects:

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    How much do you really need?

    Evaluate your needs to avoid borrowing more than necessary. Remember, larger loans mean larger repayments.

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    What's your debt-to-income ratio?

    This figure indicates what portion of your income is already committed to debt payments. A lower DTI ratio is preferable — it suggests you can take on and manage additional debt.

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    Can the loan repayment fit your budget?

    Ensure that your budget can accommodate the new loan payments without compromising your financial stability. It might involve adjusting your budget, such as reducing discretionary spending.

Assessing your finances provides you with a strong foundation for managing a personal loan responsibly, even with bad credit. It helps secure the loan and maintain your financial health throughout the repayment period.

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A personal loan calculator can be a useful tool when considering a loan with bad credit. It allows you to input different loan amounts, interest rates and terms to estimate monthly payments. It’s especially handy for loans with low credit score minimums, where terms and rates can vary greatly. By comparing different scenarios, you can assess which loan fits your budget and understand the long-term financial impact.

3. Compare Loans From Different Lenders

Exploring and comparing options from various lenders is essential since each has unique criteria for bad credit loans, including varying minimum credit score requirements. That means that some might be more accommodating of your situation than others. Remember to read reviews and verify each one’s credibility to ensure you’re making a safe choice.

After identifying potential lenders, compare their interest rates, fees and loan terms. Different lenders offer varying figures, which affects the loan’s overall affordability. Closely examine the total cost — it includes the interest rate and any additional fees or charges. By thoroughly comparing these factors, you can identify a loan that best suits your financial needs and circumstances, even with a less-than-perfect credit score.

4. Try to Prequalify

Prequalification is essential for anyone considering a personal loan with bad credit. It lets you gauge the likelihood of loan approval without affecting your credit score, as it usually only involves a soft credit check. During prequalification, lenders evaluate your financial information to provide an estimate of the loan amount, interest rate and terms you might qualify for. You can use this information to assess which loans are within reach.

Prequalification is not the same as a final loan approval. Even if you successfully prequalify for a personal loan with bad credit, you might still get denied once you undergo the formal application process.

5. Prepare the Paperwork

Getting your paperwork in order is critical when applying for a personal loan with bad credit. Doing it beforehand streamlines the process and shows lenders that you’re organized and serious about your loan request.

Typically, you'll need to gather the following:

  • Proof of identity (passport or driver's license)
  • Proof of income (pay stubs or tax returns)
  • Bank statements
  • Proof of residence (utility bills or a lease agreement)

Ensure that these are up-to-date and accurately reflect your current financial situation.

That said, be mindful of lender-specific requirements. Different lenders may have unique documentation needs, especially for applicants with bad credit. Understanding and meeting these can prevent delays or issues in your loan application.

6. Anticipate A Hard Credit Check

When you’re ready to formally apply, prepare for a hard credit check — a thorough review of your credit history and a standard part of the loan approval process. Unlike soft inquiries during prequalification, hard checks can temporarily lower your credit score (usually less than five points), which is essential to know if you have bad credit.

Here are some tips to handle a hard credit check effectively:

  • Apply only when serious: Submit loan applications only when you’re confident about proceeding. It reduces the number of hard inquiries on your credit report.

  • Limit loan applications: Minimize the effect of hard credit checks on your credit score by not applying for multiple loans within a short timeframe.

  • Time your application right: Consider the timing of your application. If you have other significant credit activities planned, like a mortgage application, it might be wise to space them out.

Being strategic about when and how often you apply means you can minimize the impact of hard credit checks on your credit score.

Key Considerations Before Securing a Personal Loan With Bad Credit

When you're looking to secure a personal loan with bad credit, it's important to keep some key considerations in mind. Understanding can help you navigate the process more effectively and avoid potential pitfalls.

  • A lower credit score means a more expensive loan: Typically, a lower credit score leads to higher interest rates. That means your loan’s total cost could be significantly higher over time. It's best to calculate and compare these costs before proceeding.

  • Beware of predatory lenders: Stay vigilant against lenders offering personal loans with extremely high fees or interest rates. These can be signs of predatory lending practices. Researching the lender’s reputation and thoroughly understanding loan terms are essential steps in protecting yourself.

  • Don’t skip the fine print: Loan agreements can contain critical details in the fine print, including fees, penalties and repayment terms. Take the time to read and understand these details to avoid any unexpected costs or conditions. If anything remains unclear, don’t hesitate to ask your lender about it.

Securing a personal loan with bad credit requires careful consideration of various factors. By paying close attention to certain factors, you can better navigate the complexities of the loan process and choose an option that best suits your financial situation.

Where Can I Get a Personal Loan With Bad Credit?

Finding the right place to get a personal loan when you have bad credit can be challenging. You have several options, each with its pros and cons. Below is a comparison to help you navigate bad credit personal loan lenders and decide which is the best fit for your financial situation.


Credit Unions

Credit unions are member-focused, often offering more personalized services. They tend to be more lenient with credit requirements and may provide lower interest rates and fees than traditional banks.

To access their services, you need to be a member. Membership might require association with a certain community, employer or other criteria. Credit unions might also have fewer locations, loan options and online services compared to larger banks.

Online Lenders

Online lenders provide a convenient application process and offer quick decision-making. They have various loan products specifically tailored for individuals with bad credit. Their online nature allows them to offer more innovative loan products and flexible terms.

Online lenders may impose higher interest rates and fees than traditional banks and credit unions. There's a higher risk of encountering less reputable lenders online, which requires careful research and due diligence. Some online lenders may not offer the same level of personal service or support as traditional institutions.

Payday Lenders

Payday lenders are known for accessibility, with a straightforward application process often requiring minimal documentation and credit checks. They’re one of the quickest options for obtaining funds, which can be crucial in emergency situations. You can receive your funds quickly after approval.

MoneyGeek does not recommend using payday loans. These loans come with extremely high interest rates and fees. They are designed for very short-term borrowing, and their cost can become exorbitant if extended. They are considered the least favorable option due to their nature and the financial risks associated with them. Payday loans won’t help you build credit — most don’t report on-time payments to credit bureaus.

Choosing the right lender for a personal loan requires careful consideration of these pros and cons. Whether it’s a credit union or online lender, ensure that their terms align with your financial capabilities and goals. Remember, the right lender can make a significant difference in your loan experience, especially when dealing with bad credit.

Strategies to Get a Personal Loan With Bad Credit

Even with bad credit, you can use these strategies to improve your chances of getting a personal loan. These approaches can make a significant difference in terms of loan approval and the terms you receive.

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    Apply with a co-signer or a co-borrower

    Having someone with a good credit score co-sign or join your loan can greatly improve your chances. Their creditworthiness can positively influence lenders' decisions.

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    Look for a secured personal loan

    Offering collateral like a car or property can make lenders more willing to provide a loan. It reduces their risk, potentially leading to better loan terms. Offering collateral can also give you more favorable loan terms, like a lower interest rate.

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    Include all sources of income

    Demonstrating a strong financial position can help. Don’t just focus on your primary salary — also include part-time jobs, freelance earnings, rental income, alimony or other regular income sources.

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    Reduce your loan amount

    Requesting a smaller loan can be more feasible. Lenders are often more willing to approve lower amounts for borrowers with bad credit.

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    Explore lender-specific programs for those with bad credit

    Some lenders offer special loan programs designed for individuals with bad credit. These can come with unique terms and conditions tailored to support those with credit challenges.

By carefully considering these strategies, you can increase your likelihood of securing a personal loan even with a less-than-ideal credit score. Each requires thoughtful planning but can potentially enhance your loan terms and overall financial stability.

FAQ: Getting a Personal Loan With Bad Credit

If you're considering a personal loan with bad credit, you likely have questions. Our FAQ section provides you with information to help guide your decisions. These equip you with the necessary knowledge for a more informed loan journey.

What is considered bad credit?
How does bad credit affect a personal loan application?
How much money can I borrow with bad credit?
Can I improve my chances of loan approval despite having bad credit?
Are there specific loans tailored for individuals with bad credit?
How do I choose the right lender for a bad credit personal loan?
What should I be aware of when comparing interest rates for bad credit loans?
Is it possible to get a personal loan with bad credit without a hard credit check?
Are there alternatives to personal loans for someone with bad credit?
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The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.

Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, lender or other entity. Learn more about our editorial policies and expert editorial team.