Unlocking opportunities: personal loans for bad credit

By Anna Davies

Reviewed by James Heflin

Sep 12, 2023 - Updated Jun 13, 2024

Read time: 6 min

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Key takeaways:

  • You can get a personal loan with bad credit, and the loan might help you build better credit.  

  • If you have bad credit, you might consider a co-borrower who has a high credit score. This can improve your chances and potentially lower your interest rate.

  • If a co-borrower isn’t an option, you might consider alternatives such as debt resolution to handle debt. 

When it comes to finances, everybody needs to reach a goal, cover an emergency, or get unstuck from a rut sometimes. Loan options are admittedly fewer for borrowers who have bad credit. Although it might be harder to find the right opportunity, it’s out there. You just need to discover it.

Here’s what to know about getting a personal loan when you have bad credit.

Can you get a personal loan with bad credit?

Yes. When you apply for a personal loan, your lender checks your credit profile. Searching for a personal loan while you have bad credit can be nerve-racking and discouraging, but different lenders have different criteria, so a lower number isn’t always an obstacle. 

What is bad credit and how does it impact loan eligibility? 

Every lender decides what it considers bad credit. It’s often any FICO score under 580. 

Your credit score is based on your experience with credit products like loans and credit cards. It’s the way the credit bureaus tell lenders how likely it is that you’ll repay your debts. If you have a lower credit score, it means that based on your history, the lender may be taking a bigger risk on you. 

Lenders typically have a minimum credit score that’s required for a loan. If your credit score is under the minimum, your application could be automatically rejected. 

Credit scores also influence the cost of the loan you get. Lenders usually have several different interest rates available for each type of loan. Borrowers with lower credit scores typically pay more for the same loan compared to borrowers with higher credit scores. 

An opportunity for a personal loan for bad credit—co-borrowers 

Some lenders will consider an applicant with bad credit if they apply with a qualified co-borrower. A co-borrower’s name goes on the loan with you. They get equal access to the loan funds (but you can have whatever private agreement you want about how to use the money). They also share equal responsibility for making the payments. You could ask ‌a close friend or family member to be your co-borrower.

Applying for a personal loan with a co-borrower has advantages. The lender will consider both credit profiles and both incomes. This could get you:

  • A larger loan

  • More favorable loan terms, such as a lower interest rate

  • Access to loans that you don’t qualify for on your own

If you’re planning to apply with another person, it’s a good idea to talk openly about why you need the loan and why you need their help. Make a formal agreement about how the loan will get paid back, and put it in writing. 

If you have a lower credit score, getting a loan with a co-borrower could be an opportunity to raise it by making all the payments on time. But if you don’t keep up with the payments, both co-borrowers’ credit will likely suffer. Also, if the loan was for you and you don’t make your payments, your co-borrower will be on the hook financially. Show your gratitude to your co-borrower by sticking to your agreement. Doing so could protect your relationship. At the same time, you could build better credit so you can get the loan on your own in the future.

Benefits of a personal loan for bad credit

A personal loan can’t wipe the slate clean on bad credit, but if used wisely, it can help you improve your financial situation and credit profile. Personal loans have many benefits.

You could use a personal loan to consolidate your higher-interest debt, simplify your finances, potentially save money on bills, and organize your budget so you can plan for your financial future. 

Here are a few key benefits of a personal loan:

  • A fixed monthly payment. Unlike with credit cards, you’re paying the same amount each month for a loan. Knowing exactly how much you have to pay can help you budget your money. 

  • A fixed interest rate. Credit cards have variable interest rates, which makes the cost and the required payment amount unpredictable. A fixed interest rate stays the same through the life of the loan.

  • A fixed term. The term is the amount of time you have to pay the loan back. Knowing your payoff date helps you plan for the future. Credit card repayment terms are designed to stretch out your debt for years or even decades.

  • Positive credit impact. Although there can be a small negative impact on your credit when you apply, a personal loan could help you build good credit if you make your payments on time. Payment history affects your credit score more than anything else.

  • More positive credit impact. Using a personal loan to consolidate credit card debt could help you build healthy credit. That’s because credit card balances can affect your credit score, especially if your cards are maxed out or almost maxed out. Loan balances, on the other hand, don’t affect your credit standing the same way. 

  • Financial flexibility for big life events. Since personal loans tend to cost less than credit cards, they’re a great choice for covering many of life’s expenses. 

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    Loan application process for a bad credit loan

Applying for a personal loan with bad credit is easy. First, you should only check your eligibility with lenders who do a soft inquiry. That kind won’t hurt your credit. When you choose a loan and submit a formal application, the lender will do a hard inquiry, which can temporarily knock a few points off your score.

If you’re applying with a co-borrower, you’ll both take the following steps.

  • Provide personal information. This is usually done online. You’ll provide your name and some identifying information so that the lender can check your rate and let you know what loan you might qualify for. This is when you can find out what the lender’s minimum credit score is. You can do this with multiple lenders if you haven’t chosen one yet.

  • Review the loan offer. The lender will tell you how much you can borrow and at what cost. This is when you can ask questions and discuss your options with a loan consultant.

  • Choose a loan and submit a formal application. Now the lender will perform a hard credit inquiry. You’ll need to provide your full social security number if you haven’t already. The lender may also ask for proof of income, such as recent pay stubs, and other documentation. Once your application is finalized, lenders often make a decision within 24 hours.

  • Receive your funds. Funds are sent to your account. This could happen as soon as the next day after the loan is approved, but could take a couple of weeks or longer.  

Common uses of a personal loan

A personal loan is received as a lump sum. Because of this, there are several situations in which a personal loan might make particularly good sense:

Building credit with bad credit loans

If used wisely, a personal loan can help you build a stronger financial future. Here are ways a personal loan can help you build healthy credit:

  • Pay on time. Payment history influences your credit profile more than anything else.

  • Keep credit card debt low. Prioritize paying down credit card debt if you have any. Credit utilization—how much debt you have compared to your credit limits—is the second most influential factor affecting your credit profile. 

Bad credit isn’t a life sentence. Your credit is fluid and can change rapidly once you address the factors that are dragging down your score. 

Anna Davies

Anna is a contributing writer for Achieve. She has specialized in writing personal finance content for over a decade, including writing for Fortune 500 finance clients as well as writing personal finance content for magazines and outlets including Forbes, Refinery29, Nasdaq, Yahoo Finance and others.

James Heflin - Author

James is a financial editor for Achieve. He has been an editor for The Ascent (The Motley Fool) and was the arts editor at The Valley Advocate newspaper in Western Massachusetts for many years. He holds an MFA from the University of Massachusetts Amherst and an MA from Hollins University. His book Krakatoa Picnic came out in 2017.

Frequently asked questions

What’s considered bad credit for a personal loan varies—each lender decides what the cutoff is for their loans. Generally, bad credit would be a score of 580 or lower. 

Yes, but most lenders require a credit score of 620 to 660. If your score does not meet the lender’s minimum, consider applying with a co-borrower who qualifies. 

There are a few lenders who specialize in offering loans to individual borrowers with low credit scores. You can search for them online.

The loan application process for people with bad credit is similar to that of people with good credit. One possible difference is that you might wish to apply for a loan with a qualified co-borrower to improve your chances of getting approved for the loan. In that case, your co-borrower will share their financial information alongside yours, including income and assets. 

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