Can You Get a Personal Loan With Bad Credit?

A personal loan is a type of unsecured loan that allows you to borrow money without needing collateral. You can use a personal loan to consolidate debt, cover emergency expenses or fund major purchases. To qualify, lenders generally evaluate your creditworthiness, which includes your credit score.

If you have bad credit, you may still be able to get a personal loan, but it can be more difficult. Due to perceived higher risk, lenders may impose higher interest rates or more stringent repayment terms, which can increase the overall cost of borrowing. Shopping around and comparing offers from different lenders can help you find the best option that suits your financial situation and credit profile.

Credit scores range from 300 to 850, with higher scores representing better creditworthiness. A bad credit score generally is below 580 for FICO scores and between 300 and 600 for VantageScore. Lenders see a bad credit score as a sign that you're a higher-risk borrower.

While the definition of what constitutes bad credit differs slightly between FICO and VantageScore, the factors used to measure credit scores are similar. These include payment history, credit utilization, length of credit history, new credit inquiries and the mix of credit types a person has open.

Note that late or missed payments, carrying high balances on credit cards and submitting multiple new credit applications can all negatively impact your score. These factors signal potential financial instability to lenders, which can affect your ability to secure credit.

As of October 2024, the average interest rate for a 24-month personal loan is 12.33%, according to Federal Reserve data. However, the interest rate you receive will depend on various factors, such as your credit score and the lender you choose.

With bad credit, you'll likely receive interest rates on the higher end of the scale. In some cases, interest rates for borrowers with bad credit can range from 20% to 36%. Shopping around and comparing offers can help you find the best available rate for your situation.

While getting a personal loan with bad credit may provide access to much-needed funds, it also comes with challenges like higher interest rates. Understanding both the pros and cons can help you make a more informed decision before applying.

• Access to funds: Even with bad credit, personal loans can provide quick access to money for emergencies or major purchases. This can be especially helpful if other types of credit, like credit cards, are unavailable.

• Debt consolidation: A personal loan can allow you to consolidate high-interest debt into one manageable monthly payment. Even if the loan has a higher rate, it could still be lower than the rates on multiple credit cards.

• Fixed monthly payments: Personal loans usually come with fixed interest rates and monthly payments. This makes it easier to plan your budget since the payment amount won’t change over time, unlike credit cards or other loans with variable rates.

• Credit-building potential: Successfully repaying a personal loan can help improve your credit score over time. This positive payment history may increase your creditworthiness and lead to better financial opportunities in the future.

• Higher interest rates: Lenders typically offer higher interest rates to borrowers with bad credit. This means you’ll pay more in interest over the life of the loan compared to someone with a higher credit score.

• Limited loan options: With bad credit, your options for lenders may be more limited. Some lenders may deny your application, and those who approve might offer less favorable terms, such as shorter repayment periods or smaller maximum loan amounts.

• Potential fees: Many personal loans come with fees, such as origination fees, prepayment penalties or late fees. For borrowers with bad credit, these fees can be higher, increasing the overall cost of the loan.

• Risk of more debt: If you take out a personal loan without addressing the factors that led to bad credit, you risk falling further into debt. Missing payments or defaulting on the loan can further worsen your financial situation and harm your credit score.

If you have bad credit, there are several places to get a personal loan, each with its own benefits and drawbacks. Online lenders are convenient and provide quick approval, but they usually charge higher interest rates and fees. On the other hand, credit unions often offer lower rates and more flexible terms, but you need to be a member, and the approval process may be slower. While traditional banks might offer competitive rates, they typically have stricter credit requirements, making it harder to qualify with bad credit.

Below, we've highlighted the offerings and terms provided by different online lenders for a quick comparison.

If you’re looking for a blend of affordability and customer service, MoneyGeek rounded up the best loans for bad credit.

Getting a personal loan with bad credit can be challenging, but it’s possible if you take the right steps. By understanding your credit situation and exploring your options, you can improve your chances of finding a loan that meets your needs.

Scammers often target borrowers with bad credit by offering seemingly easy loan approvals, but there are clear signs that can help you avoid falling into their traps. Here are key indicators to watch for:

• Upfront fees: Legitimate lenders do not ask for fees before approving or processing your loan. If a lender demands payment before you've signed any agreement, it's likely a scam.

• No physical address: A trustworthy lender will have a verifiable physical address. If the lender cannot provide one or only offers vague contact information, this is a red flag.

• Not registered in your state: Lenders must be registered to operate legally in the states they serve. If a lender isn't registered in your state, it's likely an illegitimate business.

• No secure website: Legitimate lenders use secure websites to protect your personal information. If the lender's website lacks a secure connection (no "https" or padlock symbol), don't provide sensitive data.

• "No credit check" advertisements: While some lenders work with bad credit, every legitimate lender will perform some form of credit check. A lender promising a loan without any credit evaluation should raise suspicion.

We answered some frequently asked questions to help you better understand how to get a personal loan with bad credit.