Unlocking opportunities: personal loans for bad credit
By Anna Davies
Reviewed by James Heflin
Sep 12, 2023
Read time: 6 min
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
Access to better loan options
Discounts on the loan
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.
The borrower with bad credit gets the benefits while the applicant with better credit takes the risk. If you don’t keep up with your payments, your co-borrower will be on the hook. Also, the payment history—good or bad—will show up on both people’s credit reports. 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 can 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 high credit card balances can hurt your credit but loan balances don’t affect it 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.
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 generally deposited into your account within one to three days after the loan is approved.
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:
Consolidating debt. One common use of a personal loan is paying off multiple debts, such as medical bills or high-interest credit card debt.
Paying for a home renovation. A personal loan can cover a home renovation and help you avoid creating balances on credit cards.
Cover a big expense. From paying for a wedding to covering moving expenses to financing dental care, there are plenty of times in life when you might not have enough cash on hand for a large expense. A personal loan can cover the gap.
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 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 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 is considered bad credit for a personal loan?
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.
Can I get a personal loan with a credit score of 600?
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.
How does the loan application process work for people with bad credit?
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.